What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 114 added, 98 removed, 297 unchanged (42% 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 9,447 licensed beds, 24 assisted living facilities, five independent living facilities, three behavioral health hospitals, 35 homecare agencies, and 29 hospice agencies.

As of September 30, 2022, we operate or manage, through certain affiliates, 68 skilled nursing facilities with a total of 8,726 licensed beds, 23 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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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 Company recorded $0 and $10,429,000 of government stimulus income from the Provider Relief Funds for the three months ended September 30, 2022 and 2021, respectively.

The Company recorded $10,940,000 and $48,304,000 of government stimulus income from the Provider Relief Funds for the nine months ended September 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.

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.

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.

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

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

As of September 30, 2022, $138,000 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.

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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 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. 

At September 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 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.

The overall census in owned and leased skilled nursing facilities for the nine months ending September 30, 2022 was 83.4% compared to 80.0% for the same period a year ago.  For the three months ended September 30, 2022, overall census in our owned and leased skilled nursing facilities was 83.7% compared to 82.0% in the third quarter of 2021.

Due to the pandemic, as well as the increased strain the pandemic has caused on America's healthcare labor shortage, the challenge of maintaining desirable patient census levels has been amplified.

Management has undertaken a number of steps in order to best position our current and future health care facilities.

This includes working internally to examine and improve systems to be most responsive to referral sources and payors.

This includes working internally to examine and improve systems to be most responsive to referral sources and payors, as well as find creative initiatives to retain and attract qualified healthcare professionals.

Additionally, NHC is in various stages of partnerships with hospital systems, payors, and other post–acute alliances to better position ourselves so we are an active participant in the delivery of post-acute healthcare services.

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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 June 30, 2022:

In July 2022, CMS launched its enhanced Five-Star Quality Rating System which integrates data nursing homes report on their weekend staffing rates for nurses and information on annual turnover among nurses and administrators.

Through this enhancement, CMS will hold facilities to a higher standard and incentivize more robust staffing by strengthening personnel’s impact on overall star ratings.

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

Industry Ratings

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Our accrued professional liability and workers’

compensation reserves totaled $102,663,000 at June 30, 2022 and are a primary area of management focus.

compensation reserves totaled $103,710,000 at September 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 fiscal year 2022 rule provided for an approximate 1.2% increase, or $410 million, compared to 2021 levels.

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 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 net increase included a 2.7% market-basket update that was 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 July 2022, CMS released its final rule outlining fiscal year 2023 Medicare payment rates and policy changes for skilled nursing facilities, which began 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. 

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 and a 2.3% decrease in the FY 2023 SNF PPS rates as a result of the recalibrated parity adjustment.

The recalibrated parity adjustment is a total of 4.6% and is being phased in over the next two years (2.3% annually).

For the first nine 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 estimate the resulting increase in revenue for the 2023 fiscal year will be approximately $3,200,000 annually, or $800,000 per quarter.

Effective October 1, 2022 and for the fiscal year 2023, the state of South Carolina implemented specific individual nursing facility increases.

We estimate the resulting increase in revenue for the 2023 fiscal year will be approximately $3,735,000 annually, or $934,000 per quarter.

Effective July 1, 2021 and for the fiscal year 2022, the state of Missouri implemented specific individual nursing facility increases.

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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 $5,001,000 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 have recorded $4,736,000 and $5,053,000 in net patient revenues for these supplemental Medicaid payments for the three months ended September 30, 2022 and 2021, respectively.

We have recorded $15,275,000 and $16,102,000 in net patient revenues for these supplemental Medicaid payments for the nine months ended September 30, 2022 and 2021, respectively.

For the first nine months of 2022, our average Medicaid per diem increased 2.3% 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.

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

CMS projects payments to home health agencies in fiscal year 2023 will increase in aggregate by 0.7%, or $125 million.

The increase reflects the effects of the home health payment update percentage of 4.0%, a permanent behavioral assumption adjustment resulting in a decrease of 3.5%, and an estimated 0.2% increase that reflects the effects of an update to the fixed-dollar loss ratio used in determining outlier payments.

Medicare –

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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 June 30, 2022

Three Months Ended September 30, 2022

Revenues and grant income:

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Other revenues

Government stimulus income

Net operating revenues and grant income

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Income/(loss) before income taxes

Three Months Ended June 30, 2021

Three Months Ended September 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

Six Months Ended June 30, 2022

Income/(loss) before income taxes

Nine Months Ended September 30, 2022

Net patient revenues

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Unrealized losses on marketable equity securities

Income before income taxes

Six Months Ended June 30, 2021

Income/(loss) before income taxes

Nine Months Ended September 30, 2021

Revenues and grant income:

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Gain on acquisition of equity method investment

Unrealized gains on marketable equity securities

Unrealized losses on marketable equity securities

Income before income taxes

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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 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 operating results for the newly constructed healthcare facilities or agencies not at full capacity for the three and nine months ended September 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 nine months ended September 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

Nine Months Ended

Net income/(loss) attributable to National Healthcare Corporation

Non-GAAP adjustments

Unrealized (gains)/losses on marketable equity securities

Unrealized losses on marketable equity securities

Gain on acquisition of equity method investment

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Non-GAAP Net income

GAAP diluted earnings per share

GAAP diluted earnings/(loss) per share

Non-GAAP adjustments

Unrealized (gains)/losses on marketable equity securities

Unrealized losses on marketable equity securities

Gain on acquisition of equity method investment

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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 and six months ended June 30, 2022 and 2021.

Percentage of Net Operating Revenues and Grant Income

Three Months Ended

Six Months Ended

Nine Months Ended

Net operating revenues and grant income

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Gain on acquisition of equity method investment

Unrealized gains/(losses) on marketable equity securities

Income before income taxes

Income tax provision

Net (income)/loss attributable to noncontrolling interest

Net income attributable to stockholders of NHC

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. 

Unrealized losses on marketable equity securities

Income/(loss) before income taxes

Income tax (provision)/benefit

Net income/(loss)

Net loss attributable to noncontrolling interest

Net income/(loss) attributable to stockholders of NHC

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

Results for the quarter ended September 30, 2022 compared to the third quarter of 2021 include a 2.1% decrease in net operating revenues and government stimulus income.

The net operating revenues and government stimulus income decrease was primarily driven by the reduction in government stimulus income of $10.4 million during the third quarter of 2022 compared to the same period a year ago.

Excluding the government stimulus income, same-facility net operating revenues increased 3.8% during the third quarter of 2022 compared to the same period a year ago. 

For the quarter ended September 30, 2022, the GAAP net loss attributable to NHC was $2,429,000 compared to a net loss of $3,348,000 for the same period in 2021.

Excluding the unrealized losses in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter ended September 30, 2022 was $7,783,000 compared to $14,884,000 for the same period in 2021. 

The adjusted net income decrease was primarily due to the following three items:

(1) the $10.4 million less Provider Relief Funds recorded during the third quarter of 2022;

(2) the $1.5 million negative impact on our net patient revenues from Medicare sequestration that went into effect July 1, 2022;

and (3) we are incurring higher inflationary pressures on our nursing labor costs.   

Net operating revenues and grant income

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The total census at owned and leased skilled nursing facilities for the quarter averaged 83.7%, compared to an average of 82.0% for 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.

Overall, the composite skilled nursing facility per diem increased 2.4% compared to the same quarter a year ago.

Our Medicare per diem rates increased 2.2% and managed care per diem rates increased 6.1% compared to the same quarter a year ago.

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.

Medicaid and private pay per diem rates increased 2.7% and 3.3%, respectively, compared to the same quarter a year ago.

For the three months ended September 30, 2022 and 2021, respectively, $4,773,000 and $5,053,000 have been included in our net patient revenues for supplemental COVID-19 Medicaid payments.

The CARES Act 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.

The full 2% reduction went back into effect July 1, 2022 and this reduced our net patient revenues approximately $1,500,000 during the third quarter of 2022 compared to the same quarter a year ago.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire resulting in net patient revenues decreasing $5,102,000 for the three months ended September 30, 2022 compared to the same quarter last year.

Other revenues decreased $895,000, or 7.8%, 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 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.

During the three months ended September 30, 2022 and 2021, respectively, we recorded $0 and $10,429,000, 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 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.

Total costs and expenses for the three months ended September 30, 2022 compared to the same period of 2021 increased $2,790,000, or 1.1% to $266,765,000 from $263,975,000.

Salaries, wages, and benefits increased $2,963,000, or 1.7%, to $173,198,000 from $170,235,000.

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. 

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 63.9% compared to 61.5% for the three months ended September 30, 2022 and 2021, respectively.

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

The labor and workforce shortages 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 26.3% 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.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire resulting in salaries, wages, and benefits decreasing $4,587,000 for the three months ended September 30, 2022 compared to the same quarter last year.

Other operating expenses decreased $226,000, or 0.3%, to $72,883,000 for the 2022 period compared to $73,109,000 for the 2021 period.

Other operating expenses as a percentage of net operating revenues and grant income was 26.9% and 26.4% for the three months ended September 30, 2022 and 2021, respectively.

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 $668,000 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 June 30, 2022 is $1,362,000 (an effective income tax rate of 38.7%).

The income tax benefit for the three months ended September 30, 2022 is $1,140,000 (an effective income tax rate of 26.8%).

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

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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.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Results for the nine months ended September 30, 2022 compared to the same period of 2021 include a 3.8% increase in net operating revenues and grant income. The net operating revenues and grant income increase is primarily driven by the June 2021 acquisition of Caris hospice and the continued occupancy increase in our skilled nursing facilities.

But, these increases were offset by the reduction in government stimulus income of $37.4 million for the first nine months of 2022 compared to the same period a year ago.

For the nine months ended September 30, 2022, GAAP net income attributable to NHC was $16,092,000 compared to net income of $122,802,000 for the same period in 2021.

The large increase in our reported GAAP net income for the 2021 nine-month period was primarily due to the $95.2 million 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 nine months ended September 30, 2022 was $29,036,000 compared to $46,843,000 for the same period in 2021. 

The decrease in adjusted net income for the nine-month period of 2022 compared to the same period of 2021 is primarily due to the $37.4 million less government stimulus income recorded during the 2022 period. We also continue to incur inflationary wage pressures within all areas of our operations.

Net operating revenues and grant income

Net patient revenues increased $68,013,000, or 9.6%, 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.

The total census at owned and leased skilled nursing facilities for the nine-month period averaged 83.4%, compared to an average of 80.0% for the same period a year ago.

Overall, the composite skilled nursing facility per diem increased 1.6% 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.

Our Medicare per diem rates increased 2.2% and managed care per diem rates increased 4.7% compared to the nine-month period a year ago.

Medicaid and private pay per diem rates increased 2.3% and 5.6%, 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.

For the nine months ended September 30, 2022 and 2021, $15,312,000 and $16,102,000, 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 $32,114,000 for the nine months ended September 30, 2022 compared to the same period of 2021.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire resulting in net patient revenues decreasing $2,375,000 for the nine months ended September 30, 2022 compared to the same quarter last year.

Other revenues decreased $332,000, or 1.0%, compared to the same period last year, as further detailed in Note 5 to our interim condensed consolidated financial statements.

During the nine months ended September 30, 2022 and 2021, respectively, we recorded $10,940,000 and $48,304,000 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.

Total costs and expenses for the nine months ended September 30, 2022 compared to the same period of 2021 increased $49,250,000, or 6.6% to $798,339,000 from $749,089,000.

Salaries, wages, and benefits increased $35,565,000, or 7.4%, to $518,828,000 from $483,263,000.

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.

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 63.2% compared to 61.1% for the nine months ended September 30, 2022 and 2021, respectively.

Our Caris acquisition increased salaries, wages, and benefits $18,962,000 in the nine-month period of 2022 compared to the same period a year ago.

We continue to face workforce and labor shortages within all of our operations, which increases wage pressure in regards 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.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire resulting in salaries, wages, and benefits decreasing $5,150,000 for the nine months ended September 30, 2022 compared to the same period last year.

Other operating expenses increased $14,068,000, or 6.9%, to $218,279,000 for the 2022 period compared to $204,211,000 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.

Other operating expenses as a percentage of net operating revenues and grant income was 26.6% and 25.8% for the nine months ended September 30, 2022 and 2021, respectively.

Our Caris acquisition increased other operating expenses $9,601,000 in the first nine 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%).

Non–operating income decreased by $6,794,000 compared to the same period last year, as further detailed in Note 6 to our interim condensed consolidated financial statements. 

The large decrease in our non-operating income is due to the June 2021 acquisition of Caris.

Prior to the June 2021 acquisition date, Caris was our most significant equity method investment with a 75.1% non-controlling ownership interest.

From the respective acquisition date, Caris’

financial information is now included in the Company’s consolidated financial statements and is no longer accounted for as an equity method investment.

The income tax provision for the nine months ended September 30, 2022 is $5,415,000 (an effective income tax rate of 27.3%).

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

Six Months Ended

Six Month Change

Nine Months Ended

Nine 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 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.

Net cash used in operating activities for the nine months ended September 30, 2022 was $3,192,000 as compared to cash provided by operating activities of $46,871,000 in the same period last year.

Cash used in operating activities consisted of net income of $14,403,000 and adjustments for non–cash items of $44,221,000.

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.

There was cash used for working capital needs in the amount of $63,011,000 for the nine months ended September 30, 2022 compared to $31,297,000 for the same period a year ago. We also received cash distributions from our unconsolidated investments of $439,000 during the nine months ended September 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 $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.

Net cash used in investing activities totaled $8,810,000 for the nine months ended September 30, 2022, compared to $52,837,000 for the nine months ended September 30, 2021.

Cash used for property and equipment additions was $24,563,000 and $25,774,000 for the nine months ended September 30, 2022, and 2021, respectively.

In the prior period, we used cash of $28,713,000 to acquire Caris. Proceeds from the sale of marketable securities, net of purchases, resulted in cash provided by investing activity of $9,397,000 for the nine months ended September 30, 2022. 

The Company also collected notes receivable of $4,181,000 and received proceeds from the sale of property and equipment of $4,175,000 for the nine months ended September 30, 2022.  

Financing Activities  

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.

Net cash used in financing activities totaled $35,541,000 for the nine months ended September 30, 2022 compared to $25,769,000 for the nine months ended September 30, 2021.

We made principal payments under our finance lease obligations in the amount of $3,495,000 and $3,292,000 for the nine months ended September 30, 2022 and 2021, respectively.

Cash used for dividend payments to common stockholders totaled $25,830,000 in the current year period compared to $24,010,000 for the same period a year ago.

We repurchased common shares outstanding in the amount of $6,907,000 in the current year period compared to $278,000 for the same period a year ago.

Short –

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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 June 30, 2022, we do not have any long-term debt.

At September 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.

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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