What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-16 compared with 2023-02-17 · 138 added, 182 removed, 236 unchanged (58% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

National HealthCare Corporation, which we also refer to as NHC or the Company, is a leading provider of post–acute care and senior health care services.

At December 31, 2023, we operate or manage 68 skilled nursing facilities with 8,732 1icensed beds, 26 assisted living facilities with 1,501 units, five independent living facilities, three behavioral health hospitals, 35 homecare agencies, and 30 hospice agencies located in 8 states.

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We also own the real estate of 10 healthcare properties and lease these properties to third party operators.

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 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:

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

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 have remained elevated with incentive compensation being paid to attract and retain frontline partners, as well as increased costs of personal protective equipment (“PPE”), sanitizers and cleaning supplies, and COVID-19 testing of our patients and partners.

Despite the continued disruption of COVID-19 to our operations, our capital and financial resources, including our overall liquidity, remain strong.

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

At this time, we are not able to quantify the impact that the COVID-19 pandemic will have on our future financial results. 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. 

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.

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.

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

The Company recorded $11,457,000, $63,360,000 and $47,505,000 of government stimulus income from the Provider Relief Funds for the years ended December 31, 2022, 2021 and 2020, respectively. 

The Company recorded $0, $11,457,000 and $63,360,000 of government stimulus income from the Provider Relief Funds for the years ended December 31, 2023, 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.

The Company repaid $36,231,000 of the funds in 2021 and the remaining $15,022,000 of the funds in 2022.

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.

The Company paid $10,613,000 during the year ended December 31, 2021 and the remaining $10,545,000 during the year ended December 31, 2022.

Executive Summary

To monitor our earnings, we have developed budgets and management reports to monitor labor, census, and the composition of revenues.

Inflationary increases in our costs may cause net earnings from patient services to decline.

During certain inflationary times, our net patient revenues and government reimbursement may not keep pace with inflationary increases in our expenses, which may cause net earnings to decline.

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 2022 was 83.8% compared to 80.6% in 2021 and 83.6% in 2020.

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 (based on operational beds) in owned and leased skilled nursing facilities for 2023 was 87.9% compared to 83.8% in 2022 and 80.6% in 2021.

The pandemic caused an increased strain on America's healthcare workforce, which has created the challenge of maintaining desirable patient census levels.

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

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.

Quality of Patient Care

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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 integrated weekend staffing rates for nurses and information on annual turnover among nurses and administrators.

The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of December 31, 2022:

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

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

Industry Ratings

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Development and Growth

We are undertaking to expand our post–acute and senior health care operations while protecting our existing operations and markets.

The following table lists our recent construction and purchase activities.

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Placed in Service

Skilled Nursing

Knoxville, TN

February 2020

Assisted Living

September 2020

Skilled Nursing

Kingsport, TN

December 2020

Tullahoma, TN

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Behavioral Health Hospital

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 $102,469,000 and $98,048,000 at December 31, 2022 and 2021, respectively, and are a primary area of management focus.

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

compensation reserves.

As to exposure for professional liability claims, we have developed performance measures to bring focus to the patient care issues most likely to produce professional liability exposure, including in–house acquired pressure ulcers, significant weight loss and numbers of falls.

Our accrued professional liability and workers’ compensation reserves totaled $103,259,000 and $102,469,000 at December 31, 2023 and 2022, respectively, and are a primary area of management focus.

We have set aside restricted cash and restricted marketable securities to fund our professional liability and workers’ compensation reserves.

These programs for certification, which we regularly modify and improve, have produced measurable improvements in reducing these incidents.

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and (2) homecare and hospice services.

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

The Company also reports an “all other”

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

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 tables set forth the Company’s consolidated statements of operations by business segment (in thousands ):

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office.

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

The following tables set forth the Company’s consolidated statements of operations by business segment (in thousands ):

Year Ended December 31, 2023

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Other revenues

Government stimulus income

Net operating revenues and grant income

Net operating revenues

Costs and Expenses:

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Depreciation and amortization

Recovery of assets

Total costs and expenses

Income before non-operating income

Income (loss) before non-operating income

Non-operating income

Unrealized losses on marketable equity securities

Income (loss) before income taxes

Unrealized gains on marketable equity securities

Income before income taxes

Year Ended December 31, 2022

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Depreciation and amortization

Impairment of assets

Recovery of assets

Total costs and expenses

Income (loss) before non-operating income

Income before non-operating income

Non-operating income

Gain on acquisition of equity method investment

Unrealized losses on marketable equity securities

Income before income taxes

Income (loss) before income taxes

Year Ended December 31, 2021

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Depreciation and amortization

Impairment of assets

Total costs and expenses

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Unrealized losses on marketable equity securities

Income (loss) before income taxes

Income before income taxes

Non-GAAP Financial Presentation

The Company is providing certain non-GAAP financial measures as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company’s operations and measure the Company’s performance more consistently across periods.

Therefore, the Company believes this information is meaningful in addition to the information contained in the GAAP presentation of financial information.

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 should exclude the following items: the unrealized gains or losses on our marketable equity securities, operating results for the newly constructed healthcare facilities not at full capacity, any gains on the acquisition of equity method investments, gains on the sale of healthcare facilities, stock-based compensation expense, and impairments or recoveries of long-lived assets and notes receivable.

The operating results for the start-up operations not at full capacity include the following:

for the year ended December 31, 2022, included are operations that began from 2020 to 2022, which is two behavioral health hospitals, one hospice agency, and one homecare agency.

For the year ended December 31, 2021, included are facilities that began operations from 2019 to 2021, which is one memory care facility and two behavioral health hospitals.

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

Specifically, the Company believes the presentation of non-GAAP financial information should exclude the following items:

the unrealized gains or losses on our marketable equity securities, operating results for start-up healthcare operations not at full capacity, any gains on the acquisition of equity method investments, gains on the sale of property and equipment, stock-based compensation expense, and impairments or recoveries of long-lived assets and notes receivable.

The operating results for the start-up operations not at full capacity include the following:

for the year ended December 31, 2023, included are operations that began from 2021 to 2023, which is two behavioral health hospitals, two homecare agencies, and two hospice agencies.

For the year ended December 31, 2022, included are facilities that began operations from 2020 to 2022, which is two behavioral health hospitals, one hospice agency, and one homecare agency.

For the year ended December 31, 2021, included are facilities that began operations from 2019 to 2021, which is two behavioral health hospitals and one memory care facility.

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

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Non-GAAP adjustments:

Unrealized losses on marketable equity securities

Gain on sale of real estate/healthcare facilities

Unrealized (gains) losses on marketable equity securities

Gain on sale of property and equipment

Gain on acquisition of equity method investment

Stock-based compensation expense

Operating results for newly-opened operations not at full capacity

Operating results for newly-opened operations not at full capacity

Impairment (recovery) of assets

Income tax benefit on non-GAAP adjustments

Income tax expense (benefit) on non-GAAP adjustments

Non-GAAP Net Income

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Non-GAAP adjustments:

Unrealized losses on marketable equity securities

Gain on sale of real estate/healthcare facilities

Unrealized (gains) losses on marketable equity securities

Gain on sale of property and equipment

Gain on acquisition of equity method investment

Stock-based compensation expense

Operating results for newly-opened operations not at full capacity

Operating results for newly-opened operations not at full capacity

Impairment (recovery) of assets

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Results of Operations

The following table and discussion set forth items from the consolidated statements of operations as a percentage of net operating revenues and grant income for the years ended December 31, 2022, 2021 and 2020.

Percentage of Net Operating Revenues

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Income from operations

Non–operating income

Gain on acquisition of equity method investments

Unrealized losses on marketable equity securities

Non–operating income

Gain on acquisition of equity method investment

Unrealized gains (losses) on marketable equity securities

Income before income taxes

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Income from operations

Non–operating income

Gain on acquisition of equity method investment

Unrealized losses on marketable equity securities

Unrealized gains (losses) on marketable equity securities

Income before income taxes

Income tax provision

Net income attributable to noncontrolling interest

Net (income) loss attributable to noncontrolling interest

Net income attributable to common stockholders of NHC

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Results for the year ended December 31, 2023 compared to 2022 include a 5.1% increase in net operating revenues and grant income.

The net operating revenues 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 governmental 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 11.3% as compared to the same period a year ago.

For the year ended December 31, 2023, GAAP net income attributable to NHC was $66,798,000 compared to net income of $22,445,000 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 was $54,934,000 for the year ended December 31, 2023 compared to $37,323,000 for the same period a year ago.

The increase in non-GAAP earnings for the year ended December 31, 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 totaled $1,087,614,000 an increase of $58,529,000, or 5.7%, compared to the prior year.

Included in net patient revenues for the years ended December 31, 2023 and 2022, respectively, is $20,214,000 and $19,442,000 of supplemental Medicaid payments that were received to help mitigate the inflationary labor and medical supplies costs caused by the pandemic.

The overall average census in owned and leased skilled nursing facilities for 2023 was 87.9% compared to 83.8% in 2022.

The composite skilled nursing facility per diem increased 6.7% in 2023 compared to 2022.

Medicare and managed care per diem rates increased 3.3% and 5.9%, respectively, in 2023 compared to 2022.

Medicaid and private pay per diem rates increased 9.4% and 5.5%, respectively, in 2023 compared to 2022.

New operations, which include one skilled nursing facility acquired May 1, 2023, three assisted living facilities that we began operating on July 1, 2023, two behavioral health hospitals, two hospice agencies and two homecare agencies, have attributed to an increase of $25,821,000 in net patient revenues for the year ended December 31, 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 $48,820,000 for the year ended December 31, 2023 compared to the same period last year.

Other revenues in 2023 were $53,930,000, an increase of $8,734,000, or 19.3%, as further detailed in Note 4 to our consolidated financial statements.

In 2023, we contributed land to a newly-formed limited liability company resulting in an equity interest in the new entity.

The fair value of the land contributed to the entity was $8,000,000 and the related cost basis in the land was $1,770,000, which resulted in a gain of $6,230,000.

For the years ended December 31, 2023 and 2022, respectively, we recorded $0 and $11,457,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund.

Total costs and expenses

Total costs and expenses for 2023 increased $30,568,000, or 2.9%, to $1,084,410,000 from $1,053,842,000 in 2022.

Salaries, wages, and benefits increased $26,175,000, or 3.8%, to $712,344,000 from $686,169,000.

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 62.4% compared to 63.2% for the years ended December 31, 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 year ended December 31, 2023 our agency nurse staffing expenses decreased $30,682,000, or approximately 44.5%, compared to the same period a year ago.

New operations, which include one skilled nursing facility acquired May 1, 2023, three assisted living facilities that we began operating on July 1, 2023, two behavioral health hospitals, two hospice agencies and two homecare agencies, have attributed to an increase in salaries, wages, and benefits of $13,565,000 for the year ended December 31, 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 $31,920,000 for the year ended December 31, 2023 compared to the same period last year.

Other operating expenses decreased $1,189,000, or 0.4%, to $288,183,000 for the year ended December 31, 2023 compared to $289,372,000 for the prior year.

Other operating expenses as a percentage of net operating revenues and grant income was 25.2% and 26.7% for the years ended December 31, 2023 and 2022, respectively.

The ten new operations listed above attributed to an increase in other operating expenses of $9,082,000 for the year ended December 31, 2023 compared to the same period last year.

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 $15,025,000 for the year ended December 31, 2023 compared to the prior 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.

Facility rent expense increased $548,000, or 1.3%, to $41,525,000.

Depreciation and amortization increased 3.8% to $42,034,000.

Interest expense decreased $239,000 to $324,000 in 2023 from $563,000 in 2022.

At December 31, 2023, we have no outstanding long-term debt.

Non–operating income increased by $5,519,000, or 49.5% to $16,660,000 compared to the prior year, as further detailed in Note 5 to our consolidated financial statements.

We recorded unrealized gains in the amount of $14,944,000 for the increase in fair value of our marketable equity securities portfolio for the year ended December 31, 2023.

The marketable equity securities portfolio consists mainly of publicly-traded healthcare REIT’s and other blue-chip public companies held within our insurance companies.

The income tax provision for 2023 is $23,450,000 (an effective income tax rate of 26.4%).

2022 Compared to 2021

Results for the year ended December 31, 2022 compared to 2021 include a 1.1% 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.

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For the year ended December 31, 2022, GAAP net income attributable to NHC was $22,445,000 compared to net income of $138,590,000 for the same period in 2021.

The large decrease in our reported GAAP net income for 2022 was primarily due to the $95.2 million gain recorded in 2021 from the acquisition of Caris.

The large decrease in our reported GAAP net income for 2022 was primarily due to the $95.2 million gain recorded in 2021 from the acquisition of Caris.

Excluding the gain on the Caris acquisition, as well as the unrealized losses in our marketable equity securities portfolio and the other non-GAAP adjustments, non-GAAP net income for the year ended December 31, 2022 was $37,323,000 compared to $62,645,000 for the year ended December 31, 2021.

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Net patient revenues totaled $1,029,085,000, an increase of $63,543,000, or 6.6%, compared to the prior year.

Included in net patient revenues for the year ended December 31, 2022 and 2021, respectively, is $19,442,000 and $20,482,000 of COVID-19 supplemental Medicaid payments that were received to help mitigate the incremental costs in fighting the public health emergency.

Included in net patient revenues for the year ended December 31, 2022 and 2021, respectively, is $19,442,000 and $20,482,000 of supplemental Medicaid payments that were received to help mitigate the incremental costs in fighting the pandemic.

The overall average census in owned and leased skilled nursing facilities for 2022 was 83.8% compared to 80.6% in 2021.

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Our Caris acquisition increased other operating expenses $10,190,000 for the year ended December 31, 2022 compared to the prior year.

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 $6,859,000 for the year ended December 31, 2022 compared to the prior year.

We incurred increased expenses from our professional liability actuarial report in the fourth quarter of 2022 compared to the prior year of $3,284,000. We also continue to face inflationary pressures in certain categories within other operating expenses as well, such as food/dietary supplies and drugs/pharmaceutical supplies.

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 $6,859,000 for the year ended December 31, 2022 compared to the prior year.

We incurred increased expenses from our professional liability actuarial report in the fourth quarter of 2022 compared to the prior year of $3,284,000.

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

Facility rent expense increased $159,000, or 0.4%, to $40,977,000.

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During 2022, we had a note receivable recovery of $3,728,000.

Non–operating income decreased by $6,633,000, or 37.3% to $11,141,000 compared to the prior year, as further detailed in Note 5 to our consolidated financial statements.

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

Non–operating income decreased by $6,633,000, or 37.3% to $11,141,000 compared to the prior year, as further detailed in Note 5 to our consolidated financial statements.

The 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.

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

We previously held a noncontrolling interest in the partnership.

Upon acquiring the remaining ownership interest in Caris, we valued the business and our previously held equity position (75.1%) based upon Caris' fair value at the acquisition date. 

We recorded unrealized losses in the amount of $15,806,000 for the decrease in fair value of our marketable equity securities portfolio for the year ended December 31, 2022.

The marketable equity securities portfolio consists mainly of publicly-traded healthcare REIT’s and other blue-chip public companies held within our insurance companies.

The income tax provision for 2022 is $7,254,000 (an effective income tax rate of 26.6%).

2021 Compared to 2020

Results for the year ended December 31, 2021 compared to 2020 include a 4.5% increase in net operating revenues and grant income and a 231.2% increase in net income attributable to NHC. 

For the year ended December 31, 2021, GAAP net income attributable to NHC was $138,590,000 compared to net income of $41,871,000 for the same period in 2020. 

The large increase in our reported GAAP 2021 net income compared to 2020 is primarily due to the $95.2 million gain recorded from the acquisition of Caris, a hospice provider. Excluding the gain on the Caris acquisition, as well as the unrealized losses in our marketable equity securities portfolio and the other non-GAAP adjustments, non-GAAP net income for the year ended December 31, 2021 was $62,645,000 compared to $58,543,000 for the year ended December 31, 2020.

Net operating revenues and grant income

Net patient revenues totaled $965,542,000, an increase of $33,747,000, or 3.6%, compared to the prior year.

Included in net patient revenues for the year end December 31, 2021 and 2020, respectively, is $20,482,000 and $26,179,000 of COVID-19 supplemental Medicaid payments that were received to help mitigate the incremental costs in fighting the public health emergency.

The overall average census in owned and leased skilled nursing facilities for 2021 was 80.6% compared to 83.6% in 2020.

The decline in census is due to COVID-19 and the lack of new admissions from our acute care providers and referral partners, and the difficult workforce and labor environment that has limited our admissions during phases of 2021.

The composite skilled nursing facility per diem increased 2.4% in 2021 compared to 2020.

Medicare and managed care per diem rates increased 2.0% and 1.3%, respectively, in 2021 compared to 2020.

Medicaid and private pay per diem rates increased 2.2% and 2.4%, respectively, in 2021 compared to 2020.

In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing $39,746,000 for the year ended December 31, 2021 compared to 2020.

Our homecare operations had an increase in net patient revenues of approximately $5,007,000 for the year ended December 31, 2021 compared to 2020.

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

For the year ended December 31, 2021, the sale of this facility decreased net patient revenue by $7,323,000 compared to 2020.

Other revenues in 2021 were $45,400,000, a decrease of $3,517,000, or 7.2%, as further detailed in Note 4 of the consolidated financial statements. 

For the years ended December 31, 2021 and 2020, respectively, we recorded $63,360,000 and $47,505,000 in government stimulus income related to funds received from the Provider Relief Fund.

At December 31, 2021, we have not recognized as income $9,443,000 of Provider Relief Funds that are reflected in the current liability section of our consolidated balance sheet (provider relief funds) and used these funds in 2022.

See Note 2 for additional information.

Total costs and expenses

Total costs and expenses for 2021 increased $43,315,000, or 4.4%, to $1,023,377,000 from $980,062,000 in 2020.

In total, we incurred $21,555,000 and $47,674,000 of COVID-19 related expenses for the years ended December 31, 2021 and 2020, respectively.

The COVID-19 related expenses primarily consisted of:

(1) personal protective equipment and sanitizers/infection control supplies;

(2) incentive compensation paid to our frontline partners/employees;

and (3) COVID-19 testing of our patients and partners/employees.

In 2021, we also incurred asset impairment expenses of $8,225,000 for the impairment and write-down of long-lived assets (leasehold improvements) and a credit impairment on a note receivable.

Both of these impairment of assets items are due to the operating environment caused by COVID-19.

Salaries, wages and benefits, the largest operating costs of the company, increased $45,071,000, or 7.3%, to $666,063,000 from $620,992,000.

Our salaries and wages were 62.0% and 60.4% of net operating revenues and grant income for 2021 and 2020, respectively.

Our Caris acquisition in June 2021 increased salaries, wages, and benefits $20,754,000 for the year ended December 31, 2021 compared to 2020.

We incurred COVID-related incentive pay (or combat pay) in the amount of $11,010,000 for the year ended December 31, 2021 compared to $15,224,000 for 2020.

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

For the year ended December 31, 2021, our agency nurse staffing expenses were $36,391,000 compared to $11,686,000 for the 2020 year.

Other operating expenses decreased $8,405,000, or 3.1%, to $266,754,000 for 2021 compared to $275,159,000 in 2020.

These costs were 24.8% and 26.8% of net operating revenues and grant income for 2021 and 2020, respectively.

For the years ended December 31, 2021 and 2020, respectively, we incurred $10,545,000 and $32,450,000 in COVID-19 related expenses in purchasing personal protective equipment, sanitizers and infection control supplies, and lab and testing supplies.

Our Caris acquisition increased other operating expenses $8,368,000 for the year ended December 31, 2021 compared to 2020.

Facility rent expense decreased $324,000, or 0.8%, to $40,818,000.

Depreciation and amortization decreased 3.2% to $40,672,000.

Interest expense decreased $554,000 to $845,000 in 2021 from $1,399,000 in 2020.

At December 31, 2021, we have no outstanding long-term debt.

Non–operating income in 2021 decreased $8,753,000, or 33.0% to $17,744,000, as further detailed in Note 5 of the consolidated financial statements.

The decrease is due to our June 2021 acquisition of Caris.

From the respective acquisition date, we no longer record any equity in earnings from our Caris investment.

Caris' financial information (revenues and expenses) is now included in the Company's consolidated financial statements.

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.

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

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Upon acquiring the remaining ownership interest in Caris, we valued the business and our previously held equity position (75.1%) based upon Caris' fair value at the acquisition date.

In February 2020, a gain of $1,707,000 was recorded on the acquisition of the remaining ownership interest of a 166-bed skilled nursing facility in Knoxville, Tennessee.

We previously held a noncontrolling interest (25%) in the facility.

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

We recorded unrealized losses in the amount of $13,863,000 for the decrease in fair value of our marketable equity securities portfolio for the year ended December 31, 2021. 

We recorded unrealized losses in the amount of $15,806,000 for the decrease in fair value of our marketable equity securities portfolio for the year ended December 31, 2022.

The marketable equity securities portfolio consists mainly of publicly-traded healthcare REIT’s and other blue-chip public companies held within our insurance companies.

The income tax provision for 2022 is $7,254,000 (an effective income tax rate of 26.6%).

The income tax provision and effective tax rate for 2021 were favorably impacted by the nontaxable revaluation gain related to the Caris acquisition resulting in a benefit to the provision of $19,758,000 or 13.2% of income before income taxes.

The income tax provision and effective tax rate for 2021 were also favorably impacted by the statute of limitation expirations resulting in a benefit to the provision of $1,901,000 or 1.3% of income before taxes in 2021.

Liquidity, Capital Resources and Financial Condition

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Net cash provided by operating activities for the year ended December 31, 2023 was $111,216,000 as compared to $8,742,000 and $62,394,000 for the years ended December 31, 2022 and 2021, respectively.

Cash provided by operating activities consisted of net income of $19,977,000 and adjustments for non–cash items of $60,697,000.

There was cash used for working capital in the amount of $73,697,000 for the year ended December 31, 2022 compared to 40,738,000 in 2021.

We received cash distributions from our unconsolidated investments of $439,000 during the year ended December 31, 2022, compared to $6,314,000 in the prior year. 

Cash provided by operating activities consisted of net income of $65,288,000 and adjustments for non–cash items of $33,625,000.

There was cash provided by working capital in the amount of $17,396,000 for the year ended December 31, 2023 compared to cash used for working capital needs in the amount of $73,697,000 in 2022.

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

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Cash used for property and equipment additions was $27,901,000, $30,200,000, and $39,399,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

Proceeds from the sale of marketable securities, net of purchases, resulted in cash proceeds of $16,168,000 in 2022.

In 2021, we had purchases of marketable securities, net of sales, that resulted in a net use of cash of $6,267,000.

The Company collected notes receivable of $3,879,000 and $8,840,000 for the years ended December 31, 2022 and 2021, respectively.

Additionally, the Company received proceeds from the sale of property and equipment of $4,175,000 for the year ended December 31, 2022.

The acquisition of Caris hospice resulted in cash used of $28,713,000 in 2021.

On May 1, 2023, we acquired the assets of a 66-bed skilled nursing facility in Nashville, Tennessee for approximately $2,700,000.

In 2023, the Company had investments in unconsolidated companies of $4,661,000, of which the primary investment is a multi-family development in Franklin, Tennessee.

Proceeds from the sale of marketable securities, net of purchases, resulted in cash proceeds of $17,895,000 and $16,168,000 in 2023 and 2022, respectively.

For the year ended December 31, 2022, the Company collected notes receivable of $3,879,000 and received proceeds from the sale of property and equipment of $4,175,000.

Financing Activities

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We repurchased common shares outstanding in the amount of $2,482,000, $9,903,000, and $836,000 for the years ended December 31, 2023, 2022, and 2021, respectively.

Short –

term liquidity

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 $58,667,000 and unrestricted marketable securities of $123,922,000 are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months.

Long –

term liquidity

We expect to meet our long–term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $58,667,000, and unrestricted marketable securities of $123,922,000.

Short – term liquidity

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

In addition to cash flows from operations, we have current cash on hand of $107,076,000 and unrestricted marketable equity and debt securities of $116,544,000.

We also have unencumbered real estate, as well the borrowing capacity on our $50 million credit facility, that can be used to meet our contractual obligations and 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 $107,076,000, our unrestricted marketable equity and debt securities of $116,544,000, and our borrowing capacity on the $50 million credit facility.

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

At December 31, 2022, we do not have any long-term debt. 

Our ability to obtain long-term debt to meet our long–term contractual obligations and to finance our operating requirements, growth and development plans will depend upon our future performance, which will be affected by business, economic, financial and other factors, including potential changes in state and federal government payment rates for health care, customer demand, success of our marketing efforts, pressures from competitors, and the state of the economy, including the state of financial and credit markets.

Given the uncertainty in the rapidly changing market and economic conditions related to COVID-19, we will continue to evaluate the nature and extent of the impact to our business and financial position.

At December 31, 2023, we do not have any long-term debt.

Contingencies

See Note 16 to the consolidated financial statements for additional information on pending litigation and other contingencies.

See Note 17 to the consolidated financial statements for additional information on pending litigation and other contingencies.

At December 31, 2023, we have no agreements to guarantee the debt obligations of other parties.

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New Accounting Pronouncements

The Company did not adopt any new accounting standards during 2022.

The Company did not adopt any new accounting standards during 2023.

Application of Critical Accounting Policies

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Net Patient Revenues and Accounts Receivable

Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, home health care services and hospice services.

Net patient revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient services.

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The Company considers the patient's ability and intent to pay the amount of consideration upon admission.

Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations

Revenue Recognition –

Third Party Payors

Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses consolidated statements of operations

Revenue Recognition – Third Party Payors

Medicare and Medicaid program revenues, as well as certain Managed Care program revenues, are subject to audit and retroactive adjustment by government representatives or their agents.

Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care.

These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved.

In our opinion, adequate provision has been made for any adjustments that may result from these reviews.

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Accrued Risk Reserves

We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’

compensation and general and professional liability insurance claims.

We are self–insured for risks related to workers’ compensation and general and professional liability insurance.

We have two wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims.

The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims.

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The coverages include both primary policies and excess policies.

In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us. 

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-K

Item 7. Management’s Discussion and Analysis