What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 168 added, 104 removed, 223 unchanged (55% of the section changed)

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

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.

As of June 30, 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, 35 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.

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

We operate in 8 states and are located primarily in the southeastern United States.

Impact of COVID-19

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 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:

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

We began our first vaccination clinics in our skilled nursing facilities in December 2020.

As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations, as well as a significant decrease in the adverse health events related to COVID.

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

We began our first vaccination clinics in our skilled nursing facilities in December 2020.

As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations, as well as a significant decrease in the adverse health events related to COVID.

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

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

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 $320,000 of government stimulus income from the Provider Relief Funds for the three months ended June 30, 2023 and 2022, respectively.

The Company recorded $0 and $10,940,000 of government stimulus income from the Provider Relief Funds for the six months ended June 30, 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.

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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.

We have recorded $6,247,000 and $5,001,000 in net patient revenues for these supplemental Medicaid payments for the three months ended June 30, 2023 and 2022, respectively.

We have recorded $11,130,000 and $10,539,000 in net patient revenues for these supplemental Medicaid payments for the six months ended June 30, 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 three months ending March 31, 2023 was 87.4% compared to 82.7% for the same period a year ago.  

The overall census in owned and leased skilled nursing facilities for the three months ending June 30, 2023 was 87.9% compared to 84.0% for the same period a year ago.  For the six months ended June 30, 2023, overall census in our owned and leased skilled nursing facilities was 87.7% compared to 83.3% 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.

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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.

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

Quality of Patient Care

CMS introduced the Five-Star Quality Rating System to help consumers, their families and caregivers compare skilled nursing facilities more easily.

The Five-Star Quality Rating System gives each skilled nursing operation a rating ranging between one and five stars in various categories (five stars being the best).

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

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

The Five-Star Quality Rating System gives each skilled nursing operation a rating ranging between one and five stars in various categories (five stars being the best).

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

The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of June 30, 2023:

Industry Ratings

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Cedar Bluff, VA

Skilled Nursing

Nashville, TN

Tallahassee, FL

Assisted Living Facility

New Operations

Vero Beach, FL

Assisted Living Facility

New Operations

Merritt Island, FL

Assisted Living Facility

New Operations

Accrued Risk Reserves

Our accrued professional liability and workers’

compensation reserves totaled $105,626,000 at March 31, 2023 and are a primary area of management focus.

compensation reserves totaled $106,220,000 at June 30, 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

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.

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 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).

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. 

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).

In July 2023, CMS released its final 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 rule equates to a net increase of 4.0%, or approximately $1.4 billion, in Medicare Part A payments to SNFs in fiscal year 2024 compared to 2023 levels.

The rule includes a 3.0% 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 $789 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 six months of 2023, our average Medicare per diem rate for skilled nursing facilities increased 1.8% as compared to the same period in 2022. 

Medicaid –

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We estimate the resulting increase in revenue for the 2024 fiscal year will be approximately $9,000,000 annually, or $2,250,000 per quarter.

Effective July 1, 2023 and for the fiscal year 2024, the state of Missouri implemented specific individual nursing facility increases.

We estimate the resulting increase in revenue for the 2024 fiscal year will be approximately $5,000,000 annually, or $1,250,000 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 $4,883,000 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.

We have recorded $6,247,000 and $5,001,000 in net patient revenues for these supplemental Medicaid payments for the three months ended June 30, 2023 and 2022, respectively.

We have recorded $11,130,000 and $10,539,000 in net patient revenues for these supplemental Medicaid payments for the six months ended June 30, 2023 and 2022, respectively.

For the first six months of 2023, our average Medicaid per diem increased 7.8% compared to the same period in 2022.

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

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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.

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.

Medicare –

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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.

In June 2023, CMS released its proposed rule outlining fiscal year 2024 Medicare payment rates.

CMS projects payments to home health agencies in fiscal year 2024 will decrease by 2.2% or $375 million, relative to the prior year.

This decrease reflects a 3.0% market basket update, reduced by a 0.3 % productivity adjustment.

However, the agency also proposes to apply the full permanent behavioral adjustment due to the implementation of the Patient-Driven Groups Model, resulting in a decrease of 5.1% in CY 2024, which would reduce total payments by an aggregate of $870 million.

In addition, the agency also proposes an estimated 0.2% increase in payments for high-cost outlier cases.

Medicare –

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

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

The cap amount for FY2023 is $32,487.

In July 2023, CMS released its final rule outlining fiscal year 2024 Medicare payment rates.

CMS issued a rate increase of 3.1%, or $780 million, effective October 1, 2023.

This increase is the result of a 3.3% market basket increase reduced by a 0.2% productivity adjustment.

The FY2024 hospice payment update also includes an update to the statutory aggregate cap amount, which limits the overall payments per patient that are made annually.

The cap amount for FY2024 is $33,494.

Segment Reporting

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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 March 31, 2023

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, 2023

Revenues and grant income:

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Income before income taxes

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Net patient revenues

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Non-operating income

Unrealized losses on marketable equity securities

Income/(loss) before income taxes

Six Months Ended June 30, 2023

Net patient revenues

Other revenues

Net operating revenues and grant income

Costs and expenses:

Salaries, wages, and benefits

Other operating

Depreciation and amortization

Total costs and expenses

Income/(loss) from operations

Non-operating income

Unrealized gains on marketable equity securities

Income before income taxes

Six Months Ended June, 2022

Revenues and grant income:

Net patient revenues

Other revenues

Government stimulus income

Net operating revenues and grant income

Costs and expenses:

Salaries, wages, and benefits

Other operating

Depreciation and amortization

Total costs and expenses

Income/(loss) from operations

Non-operating income

Unrealized losses on marketable equity securities

Income before income taxes

Non-GAAP Financial Presentation

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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, 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 operating results for the newly constructed healthcare facilities or agencies not at full capacity for the three and six months ended June 30, 2023 include facilities or agencies that began operations from 2021 to 2023, which is two behavioral health hospitals, two homecare agencies, and two hospice agencies.

For the three months and six months ended June 30, 2022, included are facilities or agencies that began operations from 2020 to 2022, which is two behavioral health hospitals, one homecare agency, and one hospice agency.

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

Three Months Ended

Six Months Ended

Net income attributable to National Healthcare Corporation

Non-GAAP adjustments

Unrealized gains on marketable equity securities

Unrealized (gains)/losses on marketable equity securities

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

Share-based compensation expense

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

Income tax/(benefit) of income taxes on non-GAAP adjustments

Non-GAAP Net income

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Non-GAAP adjustments

Unrealized gains on marketable equity securities

Unrealized (gains)/losses 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 months ended March 31, 2023 and 2022.

Percentage of Net Operating Revenues and Grant Income

Three Months Ended

Six Months Ended

Net operating revenues and grant income

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Non–operating income

Unrealized gains on marketable equity securities

Unrealized (gains)/losses on marketable equity securities

Income before income taxes

Income tax provision

Net loss/(income) attributable to noncontrolling interest

Net loss 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.  

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Results for the quarter ended June 30, 2023 compared to the second quarter of 2022 include a 4.1% increase in net operating revenues and grant income. The net operating revenues and grant income increase was primarily driven by the continued occupancy increase in our skilled nursing facilities, as well as increases in skilled nursing per diems from some of our government payors.

Excluding the government stimulus income and the seven skilled nursing facilities in Massachusetts and New Hampshire in which we ceased operations in September 2022, same-facility net operating revenues increased 11.5% during the second quarter of 2023 compared to the same period a year ago.  

For the quarter ended June 30, 2023, GAAP net income attributable to NHC was $16,281,000 compared to net income of $3,203,000 for the same period in 2022.

Excluding the unrealized gains and losses in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter ended June 30, 2023 was $13,658,000 compared to $7,172,000 for the same period in 2022. The increase in non-GAAP earnings for the quarter ended June 30, 2023 compared to the second quarter of 2022 was primarily due to the continued occupancy increase in our skilled nursing and assisted living facilities, skilled nursing per diem increases from some of our government payors, and the continued reduction of nurse agency staffing expense within our operations.

Net operating revenues and grant income

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Medicaid and private pay per diem rates increased 11.8% and 2.4%, respectively, compared to the same quarter a year ago.

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 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.

For the three months ended June 30, 2023 and 2022, respectively, $6,247,000 and $5,001,000 have been included in our net patient revenues for supplemental COVID-19 Medicaid payments.

New operations, which include one skilled nursing facility acquired May 1, 2023, two behavioral health hospitals, two hospice agencies and two homecare agencies, have attributed to an increase of $5,890,000 in net patient revenues for the three months ended June 30, 2023 compared to the same quarter last year.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire, which resulted in net patient revenues decreasing $17,684,000 for the three months ended June 30, 2023 compared to the same quarter last year. 

Other revenues increased $2,015,000, or 18.4%, 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, 2023 and 2022, respectively, we recorded $0 and $320,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund.

See Note 3 - Coronavirus Pandemic for additional information.  

Total costs and expenses

Total costs and expenses for the three months ended March 31, 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).

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

Total costs and expenses for the three months ended June 30, 2023 compared to the same period of 2022 increased $1,797,000, or 0.7% to $268,605,000 from $266,808,000.

Salaries, wages, and benefits increased $358,000, or 0.2%, to $175,294,000 from $174,936,000.

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 62.0% compared to 64.5% for the three months ended June 30, 2023 and 2022, respectively.

We continue to face workforce and labor shortages within all of our operations.

The labor and workforce shortages have resulted in us contracting with agency nurse staffing companies in certain markets. 

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.

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 26.5% 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.

For the quarter ended June 30, 2023, our agency nurse staffing expenses decreased $10,587,000, or approximately 50.4%, compared to the same period a year ago.  

New operations, which include one skilled nursing facility acquired May 1, 2023, two behavioral health hospitals, two hospice agencies and two homecare agencies, have attributed to an increase in salaries, wages, and benefits of $4,360,000 for the three months ended June 30, 2023 compared to the same quarter last year.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire, which resulted in salaries, wages, and benefits decreasing $11,838,000 for the three months ended June 30, 2023 compared to the same quarter last year.

Other operating expenses increased $1,923,000, or 2.7%, to $73,234,000 for the 2023 period compared to $71,311,000 for the 2022 period.

Other operating expenses as a percentage of net operating revenues and grant income was 25.9% and 26.3% for the three months ended June 30, 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 $4,994,000 for the three months ended June 30, 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 increased by $1,175,000 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%). 

The income tax provision for the three months ended June 30, 2023 is $6,406,000 (an effective income tax rate of 28.7%). 

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.

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.  

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Results for the six months ended June 30, 2023 compared to the same period of 2022 include a 0.3% increase in net operating revenues and grant income. Excluding the government stimulus income and the seven skilled nursing facilities in Massachusetts and New Hampshire in which we ceased operations in September 2022, same-facility net operating revenues increased 9.6% for the six months ended June 30, 2023 compared to the same period a year ago.  

For the six months ended June 30, 2023, GAAP net income attributable to NHC was $28,004,000 compared to net income of $18,521,000 for the same period in 2022.

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, 2023 was $25,729,000 compared to $21,253,000 for the same period in 2022. 

The increase in non-GAAP earnings for the six months ended June 30, 2023 compared to the same period in the prior year was primarily due to the continued occupancy increase in our skilled nursing facilities, skilled nursing per diem increases from some of our government payors, and the continued reduction of nurse agency staffing expense within our operations.

Net operating revenues and grant income

Net patient revenues increased $11,198,000, or 2.2%, compared to the same period last year.

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.

The total census at owned and leased skilled nursing facilities for the six months ended June 30, 2023 averaged 87.7%, compared to an average of 83.3% for the same period a year ago.

Overall, the composite skilled nursing facility per diem increased 5.2% compared to the same period a year ago.

Our Medicare per diem rates increased 1.8% and managed care per diem rates increased 5.1% compared to the same period a year ago.

Medicaid and private pay per diem rates increased 7.8% and 2.7%, respectively, compared to the same period a year ago.

For the six months ended June 30, 2023 and 2022, respectively, $11,130,000 and $10,539,000 have been included in our net patient revenues for supplemental COVID-19 Medicaid payments.

New operations, which include one skilled nursing facility acquired May 1, 2023, two behavioral health hospitals, two hospice agencies and two homecare agencies, have attributed to an increase of $8,873,000 in net patient revenues for the six months ended June 30, 2023 compared to the same period last year.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire, which resulted in net patient revenues decreasing $35,485,000 for the six months ended June 30, 2023 compared to the same period last year. 

Other revenues increased $1,545,000, or 6.7%, 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, 2023 and 2022, respectively, we recorded $0 and $10,940,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund.

See Note 3 - Coronavirus Pandemic for additional information.  

Total costs and expenses

Total costs and expenses for the three months ended March 31, 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 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 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.

Total costs and expenses for the six months ended June 30, 2023 compared to the same period of 2022 decreased $3,418,000, or 0.6% to $528,156,000 from $531,574,000.

Salaries, wages, and benefits decreased $2,512,000, or 0.7%, to $343,118,000 from $345,630,000.

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 62.2% compared to 62.8% for the six months ended June 30, 2023 and 2022, respectively.

We continue to face workforce and labor shortages within all of our operations.

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.

For the six months ended June 30, 2023, our agency nurse staffing expenses decreased $15,528,000, or approximately 41.5%, compared to the same period a year ago.  

New operations, which include one skilled nursing facility acquired May 1, 2023, two behavioral health hospitals, two hospice agencies and two homecare agencies, have attributed to an increase in salaries, wages, and benefits of $7,056,000 for the six months ended June 30, 2023 compared to the same period last year.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire, which resulted in salaries, wages, and benefits decreasing $23,722,000 for the six months ended June 30, 2023 compared to the same period last year.

Other operating expenses decreased $673,000, or 0.5%, to $144,723,000 for the 2023 period compared to $145,396,000 for the 2022 period.

Other operating expenses as a percentage of net operating revenues and grant income was 26.2% and 26.4% for the six months ended June 30, 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 $10,060,000 for the six months ended June 30, 2023 compared to the same period 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 $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%). 

Non–operating income increased by $2,299,000 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, 2023 is $10,842,000 (an effective income tax rate of 28.5%). 

Noncontrolling interest

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

Three Months Ended

Three Month Change

Six Months Ended

Six Month Change

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

Cash provided by/(used in) operating activities

Cash provided by/(used in) operating activities

Cash used in investing activities

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Operating Activities

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.

Net cash provided by operating activities for the six months ended June 30, 2023 was $53,178,000 as compared to cash used in operating activities of $1,215,000 in the same period last year.

Cash provided by operating activities consisted of net income of $27,202,000 and adjustments for non–cash items of $15,508,000.

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.

There was cash provided by working capital in the amount of $9,999,000 for the six months ended June 30, 2023 compared to cash used for working capital needs of $44,552,000 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 and losses on our marketable equity securities, deferred taxes, and stock compensation. 

Investing Activities

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. 

Net cash used in investing activities totaled $2,247,000 for the six months ended June 30, 2023, compared to $8,163,000 for the six months ended June 30, 2022.

Cash used for property and equipment additions was $12,789,000 and $17,033,000 for the six months ended June 30, 2023, and 2022, respectively.

On May 1, 2023, we acquired the assets of a 66-bed skilled nursing facility in Nashville, Tennessee. Proceeds from the sale of marketable securities, net of purchases, resulted in cash provided by investing activity of $13,645,000 and $5,917,000 for the six months ended June 30, 2023 and 2022, respectively. 

Financing Activities  

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.

Net cash used in financing activities totaled $22,891,000 for the six months ended June 30, 2023 compared to $18,797,000 for the six months ended June 30, 2022.

We made principal payments under our finance lease obligations in the amount of $2,455,000 and $2,312,000 for the six months ended June 30, 2023 and 2022, respectively.

Cash used for dividend payments to common stockholders totaled $17,481,000 in the current year period compared to $17,002,000 for the same period a year ago.

We repurchased common shares outstanding in the amount of $2,482,000 in the current year period compared to $146,000 for the same period a year ago.

Short –

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

In addition to cash flows from operations, our current cash on hand of $46,144,000 and our marketable equity and debt securities of $118,647,000 are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months. 

In addition to cash flows from operations, our current cash on hand of $78,492,000, our marketable equity and debt securities of $114,952,000, and our borrowing capacity on the $50 million credit facility are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months. 

Long –

term liquidity

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $46,144,000 and our marketable equity and debt securities of $118,647,000.

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $78,492,000, our marketable equity and debt securities of $114,952,000, and our borrowing capacity on the credit facility.

At June 30, 2023, we do not have an outstanding balance on our credit facility;

therefore, leaving $50 million available for future borrowings.

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

At March 31, 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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Governmental Regulations

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation.

Laws and regulations governing Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation.

Management believes that it is following all applicable laws and regulations in all material respects.

1 unchanged sentence

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