What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 104 added, 188 removed, 223 unchanged (57% of the section changed)

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Contingencies and Commitments);

the uncertainty of the extent, duration and effects of the COVID-19 pandemic and the response of governments

the ability to attract and retain qualified personnel;

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

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.

As of March 31, 2023, we operate or manage, through certain affiliates, 68 skilled nursing facilities with a total of 8,732 licensed beds, 23 assisted living facilities with 1,181 units, five independent living facilities, three behavioral health hospitals, 34 homecare agencies, and 30 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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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.

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

NHC’s primary objective has remained the same throughout the COVID-19 pandemic:

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

NHC’s primary objective was and has remained the same throughout the COVID-19 pandemic:

that is to protect the health and safety of our patients, residents, and partners (employees).

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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.

Despite the COVID-19 cases and adverse health events from COVID declining, our operating expenses 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 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. 

The federal and state governments may consider additional stimulus and relief efforts, but we are unable to predict whether any of the additional stimulus measures will be enacted or their impact.   

Legislation and Government Stimulus Due to COVID-19

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 CARES Act. Through the CARES Act, as well as the PPPCHE, the federal government 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 was the CARES Act. Through the CARES Act, as well as the PPPCHE, the federal government 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 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 are used for healthcare-related expenses or lost revenue attributable to COVID-19.

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.

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 HHS.

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 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.

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

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 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. 

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 $0 and $10,620,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 2023 and 2022, respectively.

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

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

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

We have recorded $4,883,000 and $5,538,000 in net patient revenues for these supplemental Medicaid payments for the three months ended March 31, 2023 and 2022, respectively.

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 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.

The overall census in owned and leased skilled nursing facilities for the three months ending March 31, 2023 was 87.4% compared to 82.7% for the same period a year ago.  

Due to 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.

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The Company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance.

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:

The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of March 31, 2023:

Industry Ratings

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Behavioral Health Hospital

Cedar Bluff, VA

Accrued Risk Reserves

Our accrued professional liability and workers’

compensation reserves totaled $103,710,000 at September 30, 2022 and are a primary area of management focus.

compensation reserves totaled $105,626,000 at March 31, 2023 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 its final rule outlining fiscal year 2022 Medicare payment rates and policy changes for skilled nursing facilities, which began October 1, 2021.

The fiscal year 2022 rule provided for an approximate 1.2% increase, or $410 million, compared to 2021 levels.

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.

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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. 

In April 2023, CMS released its proposed rule outlining fiscal year 2024 Medicare payment rates and policy changes for skilled nursing facilities, which will begin on October 1, 2023.

The fiscal year 2024 proposed rule equates to a net increase of 3.7%, or approximately $1.2 billion, in Medicare Part A payments to SNFs in fiscal year 2024 compared to 2023 levels. 

The proposed rule includes a 2.7% market basket rate increase, a 3.6% market basket forecast error adjustment, less a 0.2% productivity adjustment, as well as a negative 2.3%, or approximately $745 million, decrease in 2024 SNF Payment Prospective Systems rates as a result of the second phase of the Patient Driven Payment Model parity adjustment recalibration.

For the first three months of 2023, our average Medicare per diem rate for skilled nursing facilities increased 2.1% as compared to the same period in 2022. 

Medicaid –

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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.

We estimate the resulting increase in revenue for the 2022 fiscal year will be approximately $2,000,000 annually, or $500,000 per quarter.

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 $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’

Medicaid payments, because many currently do not cover the total costs incurred in providing care to those patients.

States will continue to control Medicaid expenditures and also look for adequate funding sources, including provider assessments.

There are several pieces of legislation that include provisions designed to reduce Medicaid spending.

These provisions include, among others, provisions strengthening the Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long-term care coverage, which could, due to the timing of the penalty period, increase facilities’

exposure to uncompensated care.

Other provisions could increase state funding for home and community-based services, potentially having an impact on funding for nursing facilities.

We have recorded $4,883,000 and $5,538,000 in net patient revenues for these supplemental Medicaid payments for the three months ended March 31, 2023 and 2022, respectively.

For the first three months of 2023, our average Medicaid per diem increased 3.6% compared to the same period in 2022.

State Medicaid plans subject to budget constraints are of particular concern to us.

Changes in federal funding coupled with state budget problems and Medicaid expansion under the Affordable Care Act have produced an uncertain environment.

Some states will not keep pace with post-acute healthcare inflation.

States are currently under pressure to pursue other alternatives to skilled nursing care such as community and home–based services.

Medicaid programs are funded jointly by the federal government and the states and are administered by states under approved plans. 

Most state Medicaid payments are made under a prospective payment system or under programs which negotiate payment levels with individual providers. 

Some states use, or have applied to use, waivers granted by CMS to implement expansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards.

Medicare –

Homecare Programs

In November 2021, CMS released its final rule outlining fiscal year 2022 Medicare payment rates.

CMS projects payments to home health agencies in fiscal year 2022 will increase in aggregate by 3.2%, or $570 million.

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

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

The increase is the result of a 2.7% market basket increase reduced by a 0.7% productivity adjustment.

The FY2022 hospice payment updates also include an update to the statutory aggregate cap amount, which limits the overall payments per patient that are made annually.

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.

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category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office.

For additional information on these reportable segments see Note 2 –

Summary of Significant Accounting Policies.

The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value.

The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.

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

Three Months Ended September 30, 2022

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, 2023

Revenues and grant income:

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Non-operating income

Unrealized losses on marketable equity securities

Income/(loss) before income taxes

Three Months Ended September 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

Unrealized losses on marketable equity securities

Income/(loss) before income taxes

Nine Months Ended September 30, 2022

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 losses on marketable equity securities

Income/(loss) before income taxes

Nine Months Ended September 30, 2021

Revenues and grant income:

Unrealized gains on marketable equity securities

Income before income taxes

Three Months Ended March 31, 2022

Net patient revenues

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Non-operating income

Gain on acquisition of equity method investment

Unrealized losses on marketable equity securities

Unrealized gains on marketable equity securities

Income before income taxes

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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 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 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.

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, 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, 2023 include facilities that began operations from 2021 to 2023, which is two behavioral health hospitals, one homecare agency, and two hospice agencies.

For the three months ended March 31, 2022, included are facilities that began operations from 2020 to 2022, which is two behavioral health hospitals.

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

Three Months Ended

Nine Months Ended

Net income/(loss) attributable to National Healthcare Corporation

Net income attributable to National Healthcare Corporation

Non-GAAP adjustments

Unrealized losses on marketable equity securities

Gain on acquisition of equity method investment

Unrealized gains on marketable equity securities

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

Share-based compensation expense

Benefit of income taxes on non-GAAP adjustments

Income tax (benefit)/provision on non-GAAP adjustments

Non-GAAP Net income

GAAP diluted earnings/(loss) per share

GAAP diluted earnings per share

Non-GAAP adjustments

Unrealized losses on marketable equity securities

Gain on acquisition of equity method investment

Unrealized gains on marketable equity securities

Operating results for newly opened facilities or agencies 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 and nine months ended September 30, 2022 and 2021.

Percentage of Net Operating Revenues and Grant Income

Three Months Ended

Nine Months Ended

Net operating revenues and grant income

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Non–operating income

Gain on acquisition of equity method investment

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.   

Unrealized gains on marketable equity securities

Income before income taxes

Income tax provision

Net loss/(income) attributable to noncontrolling interest

Net income attributable to stockholders of NHC

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Results for the quarter ended March 31, 2023 compared to the first quarter of 2022 include a 3.4% decrease in net operating revenues and grant income. The net operating revenues and grant income decrease was primarily driven by the reduction in government stimulus income of $10,620,000 during the first quarter of 2023 compared to the same period a year ago, as well as us exiting the seven skilled nursing facilities in Massachusetts and New Hampshire during the third quarter of 2022.

Excluding the government stimulus income and the seven skilled nursing facilities in Massachusetts and New Hampshire, same-facility net operating revenues increased 7.1% during the first quarter of 2023 compared to the same period a year ago. 

For the quarter ended March 31, 2023, GAAP net income attributable to NHC was $11,723,000 compared to net income of $15,318,000 for the same period in 2022.

Excluding the unrealized gains in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter ended March 31, 2023 was $12,071,000 compared to $14,081,000 for the same period in 2022. 

The decrease in adjusted net income for the first quarter of 2023 compared to the first quarter of 2022 was primarily due to the $10,620,000 less in government stimulus income recorded during the current quarter.  

Net operating revenues and grant income

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Medicaid and private pay per diem rates increased 3.6% and 3.1%, 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.

For the three months ended March 31, 2023 and 2022, respectively, $4,883,000 and $5,538,000 have been included in our net patient revenues for supplemental COVID-19 Medicaid payments.

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 $16,603,000 for the three months ended March 31, 2023 compared to the same quarter last year. 

Other revenues decreased $470,000, or 3.9%, 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 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.

During the three months ended March 31, 2023 and 2022, respectively, we recorded $0 and $10,620,000 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 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 63.9% compared to 61.5% for the three months ended September 30, 2022 and 2021, respectively.

Total costs and expenses for the three months ended March 31, 2023 compared to the same period of 2022 decreased $5,215,000, or 2.0% to $259,551,000 from $264,766,000.

Salaries, wages, and benefits decreased $2,870,000, or 1.7%, to $167,824,000 from $170,694,000.

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 62.3% compared to 61.2% for the three months ended March 31, 2023 and 2022, 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).

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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 $4,587,000 for the three months ended September 30, 2022 compared to the same quarter last year.

For the quarter ended March 31, 2023, our agency nurse staffing expense decreased $4,941,000, or approximately 34%, compared to the same period 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 $11,884,000 for the three months ended March 31, 2023 compared to the same quarter last year.

Other operating expenses decreased $2,596,000, or 3.5%, to $71,489,000 for the 2023 period compared to $74,085,000 for the 2022 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.

Other operating expenses as a percentage of net operating revenues and grant income was 26.5% and 26.6% for the three months ended March 31, 2023 and 2022, respectively.

The transfer of the operations of the seven skilled nursing facilities located in Massachusetts and New Hampshire, as noted above, resulted in other operating expenses decreasing $5,206,000 for the three months ended March 31, 2023 compared to the same quarter last year.

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 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%. 

Non–operating income increased by $1,124,000 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, 2023 is $4,436,000 (an effective income tax rate of 28.2%). 

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.

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.

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. 

Despite the decrease in Provider Relief Funds, the net operating revenues increase was primarily due to the census increase in our skilled nursing facilities and the June 2021 acquisition of Caris Healthcare, a hospice provider.   

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.  

Net operating revenues and grant income

Net patient revenues increased $39,482,000, or 18.2%, compared to the same period last year.

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 4.7% 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 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.

The total census at owned and leased skilled nursing facilities for the quarter averaged 82.7%, compared to an average of 76.8% 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.

Our Medicare per diem rates increased 1.2% and managed care per diem rates increased 6.9% 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.

See Note 3 - Coronavirus Pandemic for additional information.  

Total costs and expenses

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.

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.

Salaries, wages, and benefits increased $21,535,000, or 14.4%, to $170,694,000 from $149,159,000.

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.

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.

Other operating expenses increased $7,961,000, or 12.0%, to $74,085,000 for the 2022 period compared to $66,124,000 for the 2021 period.

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.

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.

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 $6,794,000 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%. 

Non–operating income decreased by $3,061,000 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%). 

Noncontrolling interest

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

Nine Months Ended

Nine Month Change

Three Months Ended

Three Month Change

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

Cash (used in)/provided by operating activities

Cash provided by/(used in) operating activities

Cash used in investing activities

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Operating Activities

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 $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.

Net cash provided by operating activities for the three months ended March 31, 2023 was $13,857,000 as compared to cash used in operating activities of $27,457,000 in the same period last year.

Cash provided by operating activities consisted of net income of $11,285,000 and adjustments for non–cash items of $8,097,000.

There was cash used for working capital needs in the amount of $6,017,000 for the three months ended March 31, 2023 compared to $52,250,000 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, and stock compensation.

Investing Activities

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.  

Net cash used in investing activities totaled $1,427,000 for the three months ended March 31, 2023, compared to $5,920,000 for the three months ended March 31, 2022.

Cash used for property and equipment additions was $6,640,000 and $8,962,000 for the three months ended March 31, 2023, and 2022, respectively. Proceeds from the sale of marketable securities, net of purchases, resulted in cash provided by investing activity of $5,211,000 and $2,818,000 for the three months ended March 31, 2023 and 2022, respectively. 

Financing Activities  

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.

Net cash used in financing activities totaled $12,619,000 for the three months ended March 31, 2023 compared to $10,450,000 for the three months ended March 31, 2022.

We made principal payments under our finance lease obligations in the amount of $1,218,000 and $1,147,000 for the three months ended March 31, 2023 and 2022, respectively.

Cash used for dividend payments to common stockholders totaled $8,748,000 in the current year period compared to $8,493,000 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 September 30, 2022, we do not have any long-term debt.

At March 31, 2023, 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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However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid, and other federal healthcare programs.

There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support to us during this pandemic;

however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

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