What changed in this filing

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Item 1. Business

2022-02-17 compared with 2021-02-22 · 164 added, 167 removed, 199 unchanged (62% of the section changed)

Item 1 – Business

Recent Events

Omega Healthcare Investors, Inc.

(“Omega”) was incorporated in the state of Maryland on March 31, 1992, and has elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes.

Omega is structured as an umbrella partnership REIT (“UPREIT”) under which all of Omega's assets are owned directly or indirectly by, and all of Omega's operations are conducted directly or indirectly through, its operating partnership subsidiary, OHI Healthcare Properties Limited Partnership, a Delaware limited partnership (“Omega OP”).

Unless stated otherwise or the context otherwise requires, the terms “Omega”, the “Company,” “we,” “our” and “us” refer to Omega Healthcare Investors, Inc.

and its consolidated subsidiaries, including Omega OP, references to Parent refer to Omega Healthcare Investors, Inc.

without regard to its consolidated subsidiaries, and references to “Omega OP” mean OHI Healthcare Properties Limited Partnership and its consolidated subsidiaries.

(“Parent”) is a Maryland corporation that, together with its consolidated subsidiaries (collectively, “Omega” or “Company”) has elected to be taxed as a REIT for federal income tax purposes.

As of December 31, 2021, Parent owned approximately 97% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned approximately 3% of the outstanding Omega OP Units.

Omega became a publicly traded company listed on the New York Stock Exchange in 1992.

Omega has one reportable segment consisting of investments in healthcare-related real estate properties located in the United States (“U.S.”) and the United Kingdom (“U.K.”).

Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings (“MOBs”).

Our core portfolio consists of long-term leases and mortgage agreements.

All of our leases to our operators are “triple-net” leases, which require the operators (we use the term “operator” to refer to our tenants and mortgagors and their affiliates who manage and/or operate our properties) to pay all property-related expenses.

Our mortgage revenue derives from fixed rate mortgage loans, which are secured by first mortgage liens on the underlying real estate and personal property of the mortgagor.

Our other investment income derives from fixed and variable rate loans to our operators to fund working capital and capital expenditures.

Our core portfolio consists of our long-term leases and mortgage loans with healthcare operating companies and affiliates (collectively, our “operators”).

All of our leases to our operators are “triple-net” leases, which require the operators to pay all property-related expenses.

All of our mortgages are secured by first mortgage liens on the underlying real estate and personal property of the operators.

In addition to our core investments, we selectively make loans to operators for working capital and capital expenditures.

These loans, which may be either unsecured or secured by the collateral of the borrower, are classified as other investments.

On January 20, 2021, we acquired 24 senior living facilities from Healthpeak Properties, Inc.

for $510 million.

The acquisition involved the assumption of an in-place master lease with Brookdale Senior Living.

The master lease provides for 2021 contractual rent of approximately $43.5 million, and includes 24 facilities representing 2,552 operating units located in Arizona (1), California (1), Florida (1), Illinois (1), New Jersey (1), Oregon (6), Pennsylvania (1), Tennessee (1), Texas (6), Virginia (1), and Washington (4).

In February 2021, we sold 16 facilities for approximately $149.6 million in cash proceeds and recorded a gain on sale of approximately $94.4 million.

These 16 facilities were held for sale as of December 31, 2020 with a carrying value of approximately $49.3 million.

In 2020, we completed the following transactions totaling approximately $258 million in new investments:

● Acquisition of eight SNFs and three ALFs for approximately $104 million from unrelated third parties.

The facilities are located in the U.K., Indiana, Ohio and Virginia, and were added to the existing operators’ master leases with initial cash yields between 8.0% and 9.5%.

● $43 million of investments in two SNF mortgages.

● $111 million of investments in capital expenditure and construction projects.

As of December 31, 2020, our portfolio of investments included 967 healthcare facilities located in 40 states and the U.K.

From time to time, we also acquire equity interests in joint ventures or entities that support the long-term healthcare industry and our operators.

Our goal is to provide strong returns to our investors, while serving as the preferred capital partner to our operators so they can concentrate on providing a high level of care for their resident-patients.

Portfolio and Investments

As of December 31, 2021, our portfolio of real estate investments included 960 healthcare facilities located in 42 states and the U.K.

and operated by 63 third-party operators and was made up of the following:

● 738 SNFs, 115 ALFs, 28 specialty facilities and two MOBs;

● fixed rate mortgages on 56 SNFs, three ALFs and three specialty facilities;

● real estate assets that include 685 SNFs, 133 ALFs, 20 ILFs, 16 specialty facilities and two MOBs;

● fixed rate mortgages on 59 SNFs, two ALFs and two specialty facilities;

● 41 facilities held for sale.

As of December 31, 2020, our investments in these facilities, net of impairments and allowances, totaled approximately $9.7 billion.

In addition, we held other investments of approximately $467.4 million, consisting primarily of secured loans to third-party operators of our facilities and $200.6 million of investment in five unconsolidated joint ventures.

For the year ended December 31, 2020, we have collected substantially all of the contractual rents owed to us from our operators.

However, the COVID-19 pandemic continues to have a significant impact on our operators.

Many of our operators have reported incurring significant cost increases and declines in occupancy as a result of the COVID-19 pandemic.

While government relief measures at the federal and state levels, including expanded Medicaid reimbursements, have offered meaningful support to offset a portion of these cost increases and impacts to our SNF operators, and to a lesser extent our ALF operators, we cannot at this time estimate the net impact going forward to these operators, and we cannot estimate the extent to which operators will receive additional governmental relief.

For further discussion of the impact of COVID-19, See Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview and Outlook .

While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we expect the uncertainties to our business described above to persist at least for the near term until we can gain more visibility into the costs our operators will experience and for how long, and the level of additional governmental support that will be available to them, the potential support our operators may request from us and the future demand for needs-based skilled nursing care and senior living facilities.

We continue to monitor the impact of occupancy declines at many of our operators, and it remains uncertain whether and when demand and occupancy levels will return to pre-COVID-19 levels.

Summary of Financial Information by Asset Category

The following table summarizes our revenues by asset category for 2020, 2019 and 2018.

(See Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, Note 3 – Properties , Note 4 – Direct Financing Leases, Note 5 – Mortgage Notes Receivable and Note 6 – Other Investments).

Revenues by Asset Category

(in thousands)

Year Ended December 31,

Real estate related income:

Rental income

Income from direct financing leases

Mortgage interest income

Total real estate related revenues

Other investment income

Miscellaneous income

Total operating revenues

The following table summarizes our real estate assets by asset category as of December 31, 2020 and 2019:

Assets by Category

(in thousands)

Included below is a summary of our total investment assets, excluding accumulated depreciation, as of December 31, 2021 and 2020 (dollars in thousands):

As of December 31,

Real estate assets:

Furniture, fixtures and equipment

Site improvements

Buildings and improvements

Furniture and equipment

Construction in progress

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Assets held for sale

Total real estate related assets

Total real estate investments

Other investments - net

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Total investments

Description of the Business

The following table summarizes our revenues by investment category for 2021, 2020 and 2019 (dollars in thousands):

Year Ended December 31,

Real estate related income:

Rental income

Income from direct financing leases

Mortgage interest income

Total real estate related revenues

Other investment income

Miscellaneous income

Total revenues

Investment Strategy

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● the facility’s historical and forecasted cash flow and its ability to meet operational needs, capital expenditure requirements and lease or debt service obligations;

● the construction quality, condition and design of the facility;

● the construction quality, condition and design of the facility and its environmental impact;

● the location of the facility;

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Our strategy includes applying data analytics to our investment underwriting and asset management, as well as selling or transitioning assets that do not meet our portfolio criteria.

We prefer to invest in equity ownership of properties.

We prefer to invest in fee simple ownership of properties.

Due to regulatory, tax or other considerations, we may pursue alternative investment structures, such as mortgages and investments in joint ventures.

While the market for long-term care real estate acquisitions in the U.S.

remained competitive in 2021, we continued to seek and identify selective investments that are accretive to our portfolio.

In addition to our U.S.-based investments, we expect to continue to pursue investments in alternative jurisdictions such as the U.K.

As part of our continuous evaluation of our portfolio and in connection with certain operator workout transactions, we expect to continue to opportunistically sell assets, or portfolios of assets, from time to time.

In addition, as the long-term care industry evolves and adapts to new protocols, we have made and may continue to make select ancillary investments in companies that enhance the technology and infrastructure of long-term care providers and our operators.

The following summarizes our primary investment structures.

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Triple-Net Operating Leases

Triple-net operating leases typically range from 5 to 15 years, plus renewal options.

Our triple-net operating leases typically range from 5 to 15 years, plus renewal options and require the operator to pay rent and all additional charges incurred in the operation of the leased facility.

Our leases generally provide for minimum annual rents that are subject to annual escalators.

Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectibility assessment.

At December 31, 2021, our average annualized yield from operating leases was approximately 9.8%.

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The majority of our leased real estate properties are leased under provisions of master lease agreements that govern more than one facility and to a lesser extent we lease facilities under single facility leases.

Under our master leases, our operators are required to make one monthly payment that represents rent on all the properties that are subject to the master lease.

Some of our leases provide our operators with advances for the construction of facilities or capital expenditures for strategic facility enhancements.

Typically, these advances require the operator to pay a fixed percentage of the advances funded as capital expenditure rent under the lease.

Construction and upgrades made under these lease clauses are capitalized within our real estate assets.

Because we direct a significant amount of our capital back into existing assets, we believe this sets the stage for our long-term strategic success.

Fixed-Rate Mortgages

Our mortgages typically have a fixed interest rate for the mortgage term and are secured by first mortgage liens on the underlying real estate and personal property of the mortgagor.

We enter into mortgages for existing facilities and for the construction of facilities.

At December 31, 2021, our average annualized yield on these investments was approximately 10.5%.

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The healthcare industry is highly competitive and will likely become more competitive in the future.

We face competition in making and pricing new investments from other public and private REITs, investment companies, private equity and hedge fund investors, healthcare operators, lenders, developers and other institutional investors, some of whom have greater resources and lower costs of capital than us.

We face competition in making and pricing new investments from other public and private REITs, investment companies, private equity and hedge fund investors, healthcare operators, lenders, developers and other institutional investors, some of whom may have greater resources and lower costs of capital than us.

We believe our use of data analytics to underwrite investments and manage our portfolio may provide us a competitive advantage.

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We have utilized, and may continue to utilize, one or more taxable REIT subsidiary (“TRS”) to engage in activities that REITs may be prohibited from performing, including the provision of management and other services to third parties and the conduct of certain nonqualifying real estate transactions.

Our TRSs generally are taxable as regular corporations, and therefore, subject to federal, state and local income taxes.

Our TRSs generally are taxable as regular corporations, and therefore, subject to federal, foreign, state and local income taxes.

To the extent that we do not distribute all of our net capital gain or do distribute at least 90%, but less than 100% of our “REIT taxable income,” as adjusted, we will be subject to tax thereon at regular ordinary and capital gain corporate tax rates.

If we were to fail to qualify as a REIT in any taxable year, as a result of a determination that we failed to meet the annual distribution requirement or otherwise, we would be subject to federal income tax, and any applicable alternative minimum tax on our taxable income at regular corporate rates with respect to each such taxable year for which the statute of limitations remains open.

In addition, we could become subject to certain punitive excise taxes on nonqualified REIT income.

If we were to fail to qualify as a REIT in any taxable year, as a result of a determination that we failed to meet the annual distribution requirement or otherwise, we would be subject to federal and state income tax, and any applicable alternative minimum tax on our taxable income at regular corporate rates with respect to each such taxable year for which the statute of limitations remains open.

In addition, even if we continue to qualify as a REIT, we could become subject to certain excise taxes.

Moreover, unless entitled to relief under certain statutory provisions, we also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost.

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All of our investments are held directly or through entities owned by Omega OP.

Omega OP is a pass through entity for United States federal income tax purposes, and therefore we are required to take into account our allocable share of each item of Omega OP’s income, gain, loss, deduction, and credit for any taxable year of Omega OP ending within or with our taxable year, without regard to whether we have received or will receive any distribution from Omega OP.

Omega OP is a pass through entity for U.S.

federal income tax purposes, and therefore we are required to take into account our allocable share of each item of Omega OP’s income, gain, loss, deduction, and credit for any taxable year of Omega OP ending within or with our taxable year, without regard to whether we have received or will receive any distribution from Omega OP.

Although a partnership agreement for pass through entities generally will determine the allocation of income and losses among partners, such allocations will be disregarded for tax purposes if they do not comply with the provisions of the Code and Treasury Regulations governing partnership allocations.

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There is the potential that we may be subject directly to healthcare laws and regulations because of the broad nature of some of these regulations, such as the Anti-kickback Statute and False Claims Act, among others.

Additionally, emergency legislation, including the CARES Act enacted on March 27, 2020 and discussed below, and temporary changes to regulations and reimbursement in response to the COVID-19 pandemic, continue to have a significant impact on the operations and financial condition of our operators.

The extent of the COVID-19 pandemic’s effect on the Company’s and our operators’ operational and financial performance will depend on future developments, including the sufficiency and timeliness of additional governmental relief, the duration, spread and intensity of the outbreak, the impact of new vaccine distributions on our operators and their populations, as well as the difference in how the pandemic may impact SNFs in contrast to ALFs, all of which developments and impacts are uncertain and difficult to predict.

Department of Health and Human Services (“HHS”) declared a public health emergency on January 31, 2020 following the World Health Organization's decision to declare COVID-19 a public health emergency of international concern.

This declaration, which has been extended through April 14, 2022, allows HHS to provide temporary regulatory waivers and new reimbursement rules designed to equip providers with flexibility to respond to the COVID-19 pandemic by suspending various Medicare patient coverage criteria and documentation and care requirements, including, for example, suspension of the three-day prior hospital stay coverage requirement and expanding the list of approved services which may be provided via telehealth.

These regulatory actions have contributed, and may continue to contribute, to a change in census volumes and skilled nursing mix that may not otherwise have occurred.

It remains uncertain when federal and state regulators will resume enforcement of those regulations which are waived or otherwise not being enforced during the public health emergency due to the exercise of enforcement discretion.

These temporary changes to regulations and reimbursement, as well as emergency legislation, including the CARES Act enacted on March 27, 2020 and discussed below, continue to have a significant impact on the operations and financial condition of our operators.

The extent of the COVID-19 pandemic’s effect on the Company’s and our operators’ operational and financial performance will depend on future developments, including the sufficiency and timeliness of additional governmental relief, the duration, spread and intensity of the outbreak, the impact of genetic mutations of the virus into new variants, the impact of vaccine distributions and booster doses on our operators and their populations, the impact of vaccine mandates on staffing shortages at our operators, as well as the difference in how the pandemic may impact SNFs in contrast to ALFs, all of which developments and impacts are uncertain and difficult to predict.

Due to these uncertainties, we are not able at this time to estimate the effect of these factors on our business;

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A significant portion of our operators’ revenue is derived from government-funded reimbursement programs, consisting primarily of Medicare and Medicaid.

the balance represents reimbursement payments from alternative payors.

As federal and state governments continue to focus on healthcare reform initiatives, efforts to reduce costs by government payors will likely continue, which may result in reductions in reimbursement at both the federal and state levels.

Additionally, new and evolving payor and provider programs, including but not limited to Medicare Advantage, dual eligible, value-based purchasing, payments to providers that are tied to quality and efficiency such as the Patient Driven Payment Model, and bundled payments, could adversely impact our tenants’ and operators’ liquidity, financial condition or results of operations, and there can be no assurance that payments under any of these government health care programs are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses.

Significant limits on the scope of services reimbursed and/or reductions of reimbursement rates could therefore have a material adverse effect on our operators’ results of operations and financial condition, which could adversely affect our operators’ ability to meet their obligations to us.

In addition to quality or value based reimbursement reforms, the U.S.

As federal and state governments continue to focus on healthcare reform initiatives, efforts to reduce costs by government payors will likely continue.

Additionally, new and evolving payor and provider programs that are tied to quality and efficiency could adversely impact our tenants’ and operators’ liquidity, financial condition or results of operations, and there can be no assurance that payments under any of these government healthcare programs are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses.

In addition to quality and value based reimbursement reforms, the U.S.

Centers for Medicare and Medicaid Services (“CMS”) has implemented a number of initiatives focused on the reporting of certain facility specific quality of care indicators that could affect our operators, including publicly released quality ratings for all of the nursing homes that participate in Medicare or Medicaid under the CMS “Five Star Quality Rating System.” Facility rankings, ranging from five stars (“much above average”) to one star (“much below average”) are updated on a monthly basis.

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Reimbursement Changes Related to COVID-19:

CARES Act and Provider Funds Appropriating $178 Billion.

In response to the pandemic, on March 27, 2020, the CARES Act was signed into law in the U.S.

The CARES Act allocates $100 billion to a Public Health and Social Services Emergency Fund to “reimburse, through grants or other mechanisms, eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus.” Certain healthcare operators may be eligible to receive compensation for lost revenue or costs incurred in the course of providing medical services, such as those related to obtaining personal protective equipment (“PPE”), COVID-19 related testing supplies, and increased staffing or training, provided that such costs are not compensated by another source.

The Secretary of the U.S.

Department of Health and Human Services (“HHS”) has broad authority and discretion to determine payment eligibility and the amount of such payments.

Congress appropriated an additional $ 75 billion for healthcare providers through the Paycheck Protection Program and Health Care Enhancement Act , which was signed into law on April 24, 2020, and an additional $3 billion was added through a federal stimulus bill enacted in December 2020.

HHS is distributing this money through the Provider Relief Fund, and these payments do not need to be repaid to the extent they are used in compliance with the applicable requirements.

Certain provisions of the CARES Act related to SNFs and/or ALFs are summarized below.

Distribution of Relief Funds:

● Phases 1, 2, 3 General Distributions of $92.5 Billion to Healthcare Providers :

HHS announced several distributions of congressional relief funds to healthcare providers, including

◾ A Phase 1 General Distribution of approximately $50 billion to participants in the Medicare program equivalent to 2% of their annual revenue,

◾ A Phase 2 General Distribution including $18 billion in funding to be provided to providers that participate in Medicaid and the Children’s Health Insurance Program as well as ALF providers (up to 2% of their annual revenues) but who had not received funding in the initial rounds, and

◾ A Phase 3 General Distribution of $20 billion in funding for frontline healthcare providers, including SNFs and ALFs, dealing with the COVID-19 pandemic, which is intended to take into account financial losses caused by COVID-19.

In December 2020, HHS announced an additional $4.5 billion in Phase 3 General Distribution funding, with nursing homes receiving $1.10 billion in federal funding as part of the Phase 3 General Distribution.

Providers that have already received relief fund payments may also apply for these funds, as well as certain behavioral health specialists and previously ineligible health care providers.

In addition, distributions may be conditioned on and subject to operators meeting certain compliance obligations.

The ultimate allocation of these distributions to healthcare providers may differ from the methodology initially announced by HHS, in which distributions would be based on prior Medicare reimbursements or historical net patient revenue.

● Additional Targeted SNF Distributions of Approximately $9.5 Billion :

In 2020, HHS announced several rounds of targeted distributions to skilled nursing facilities, including

◾ A first round of approximately $4.9 billion announced in May 2020 to Medicare-certified SNFs from the Provider Relief Fund to offset revenue losses and assist nursing homes with additional costs related to responding to the COVID-19 public health emergency declared by HHS.

◾ A second round announced from August through September 2020, including additional targeted distributions of $4.5 billion from the Provider Relief Fund in total to SNFs to address critical needs in nursing homes related to infection control, such as the hiring of additional staff, implementing infection control “mentorship” programs with subject matter experts, increased testing, and providing additional technology services to residents who are unable to receive visitors.

The $4.5 billion of distributions included an initial $2.5 billion to be paid out to all Medicare-certified SNFs, as well as a second distribution of approximately $2 billion to be paid out as performance-based incentive payments, based on each nursing home’s infection rates relative to the county it is located in and mortality rates relative to a national standard for nursing homes, with the infection control component accounting for 80% of the incentive payment dollars and the mortality component accounting for 20% of the incentive payment.

In October 2020, HHS announced the distribution of approximately $331 million in payments under the Nursing Home Quality Incentive Program for the September 2020 performance period.

In December 2020, approximately $523 million in second round payments under the Nursing Home Quality Incentive Program were distributed for the October 2020 performance period.

We believe HHS began distributions for the November 2020 performance period in January 2021.

HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act.

There are substantial uncertainties regarding the extent to which our operators will receive such funds, the financial impact of receiving such funds on their operations or financial condition, and whether operators will be able to meet the compliance requirements associated with the funds.

Temporary Suspension of Medicare Sequestration:

SNFs have continued to be impacted by the Bipartisan Budget Act of 2019, which extended Medicare sequestration and Medicare reimbursement cuts to providers and plans by 2% across the board through 2029.

However, the CARES Act temporarily suspended Medicare sequestration for the period of May 1, 2020 through December 31, 2020, resulting in an increase in fee-for-service Medicare payments by approximately 2% as compared to what providers would have otherwise received during this period.

In exchange for this temporary suspension, the CARES Act also extends the mandatory sequestration policy by an additional one year, i.e., through 2030.

The Bipartisan-Bicameral Omnibus COVID Relief Deal passed in December 2020 extended the suspension of the Medicare sequestration until March 31, 2021.

Temporary Suspension of Certain Patient Coverage Criteria and Documentation and Care Requirements :

The CARES Act and a series of temporary waivers and guidance issued by the CMS suspend various Medicare patient coverage criteria as well as documentation and care requirements to provide regulatory relief to ensure patients continue to have adequate access to care notwithstanding the burdens placed on healthcare providers due to the COVID-19 pandemic.

These regulatory actions could contribute to a change in census volumes and skilled nursing mix that may not otherwise have occurred.

Medicare Accelerated and Advanced Payment Program:

In an effort to increase cash flow to providers impacted by COVID-19, CMS had temporarily expanded the Accelerated and Advance Payment Programs from March 28, 2020 until April 26, 2020 in order to provide accelerated or advance payments during the period of the public health emergency to any Medicare provider or supplier who submitted a request to the appropriate Medicare Administrative Contractor and met the required qualifications.

Traditionally repayment of these advance/accelerated payments is set to begin at 90 days, however CMS initially extended the repayment of these accelerated/advance payments to begin 120 days after the date of issuance of the payment and in October 2020, further extended the repayment to begin one year after payment was issued for repayment to occur over an extended period of time.

Payroll Tax Deferral:

The CARES Act additionally provided payroll tax relief for employers, allowing them to defer payment of employer Social Security taxes that are otherwise owed for wage payments made after March 27, 2020 through December 31, 2020.

Instead of depositing these taxes on a next-day or semi-weekly basis, the deposit due date for 50% of the taxes is deferred to December 31, 2021, with the remaining 50% deferred until December 31, 2022.

Quality of Care Initiatives Related to COVID-19:

In addition to COVID-19 reimbursement changes, several regulatory initiatives announced in 2020 focused on addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes.

Recent updates to the Nursing Home Care website and the Five Star Quality Rating System include revisions to the inspection process, adjustment of staffing rating thresholds and the implementation of new quality measures.

While, as a result of the COVID-19 pandemic, CMS made changes to, or temporarily suspended the collection and reporting of, certain survey inspection, staffing levels and quality measures, which impacted the information posted on the Nursing Home Compare website and used in the Five Star Quality Rating System calculation, CMS announced a new, targeted inspection plan to focus inspections on urgent patient safety threats and infection control, therefore causing a shift in the number of nursing homes inspected and how the inspections are conducted.

In addition, in August 2020, CMS released a Medicaid Informational Bulletin that provided guidance to states on flexibilities that are available to increase Medicaid reimbursement for nursing facilities that implement specific infection control practices, such as designating a quarantine or isolation wing for COVID-19 patients.

Further, the Coronavirus Commission for Safety and Quality in Nursing Homes, a special task force created for the purpose of addressing the rising death toll of residents in nursing homes, issued recommendations in September 2020 with steps that both providers and regulators should take to address future pandemic conditions or public health emergencies.

On June 16, 2020, the U.S.

House of Representatives Select Subcommittee on the Coronavirus Crisis announced the launch of an investigation into the COVID-19 response of nursing homes.

The Select Subcommittee is seeking information from CMS on the enforcement of health and safety regulations during the crisis, data collection, and provision of life-saving supplies.

Additionally, the Select Subcommittee is seeking documents and information from the five largest U.S.

for-profit nursing home operators related to COVID-19 cases and deaths, testing, PPE, staffing levels and pay, legal violations, and efforts to prevent further infections, as well as additional transparency regarding the use of federal funds by nursing homes during the pandemic.

Temporary Medicaid FMAP Increase.

Federal Stimulus Funds and Financial Assistance for Healthcare Providers .

In response to the pandemic, Congress has enacted a series of economic stimulus and relief measures.

On March 18, 2020, the Families First Coronavirus Response Act was enacted in the U.S., providing a temporary 6.2% increase to each qualifying state and territory’s Medicaid Federal Medical Assistance Percentage (“FMAP”) effective January 1, 2020.

As part of the requirements for receiving the temporary FMAP increase, states must cover testing services and treatments for COVID-19 and may not impose deductibles, copayments, coinsurance or other cost sharing charges for any quarter in which the temporary increased FMAP is claimed.

The temporary FMAP increase will extend through the last day of the calendar quarter in which the COVID-19 public health emergency declared by the HHS, including any extensions, terminates .

HHS has announced an extension of the public health emergency due to the COVID-19 pandemic through April 21, 2021.

In addition to maintaining the increased FMAP, this extension also allows the temporary Section 1135 waivers, including suspension of the three-day prior hospital stay coverage requirement and the relaxation of telehealth restrictions, to continue.

The temporary FMAP increase will extend through the last day of the calendar quarter in which the public health emergency terminates.

States will make individual determinations about how this additional Medicaid reimbursement will be applied to SNFs, if at all.

In further response to the pandemic, in 2020, the CARES Act authorized approximately $178 billion to be distributed through the Provider Relief Fund to reimburse eligible healthcare providers for healthcare related expenses or lost revenues that are attributable to coronavirus.

In addition, in September 2021, HHS announced the release of $25.5 billion in provider funding, including $17 billion of the $178 billion previously authorized through the CARES Act and $8.5 billion for rural providers through the American Rescue Plan Act.

The Provider Relief Fund is administered under the broad authority and discretion of HHS and recipients are not required to repay distributions received to the extent they are used in compliance with applicable requirements.

HHS began distributing Provider Relief Fund grants in April 2020 and has made grants available to various provider groups in four general phases.

In May 2020, HHS announced that approximately $9.5 billion in targeted distributions would be made available to eligible SNFs, approximately $2.5 billion of which were composed of performance-based incentive payments tied to a facility’s infection rate.

Approximately $8.5 billion in additional funds were added to the Provider Relief Fund through the American Rescue Plan Act enacted on March 11, 2021;

however, these funds are limited to rural providers and suppliers.

In September 2021, HHS announced the release of $25.5 billion of funding, including $17 billion in Phase 4 Provider Relief Fund payments for a broad range of healthcare providers who can document revenue loss and expenses associated with the pandemic between July 1, 2020 and March 31, 2021, as well as release of the $8.5 billion in funding for rural providers, including those with Medicaid and Medicare patients.

In addition, in September 2021, the Centers for Disease Control and Prevention (“CDC”) announced it would allocate $500 million to staffing, training and deployment of state-based nursing home and long-term care “strike teams” to assist facilities with known or suspected COVID-19 outbreaks.

HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act.

There are substantial uncertainties regarding the extent to which our operators will receive additional funding from HHS.

The CARES Act and related legislation also made other forms of financial assistance available to healthcare providers, which have the potential to impact our operators to varying degrees.

This assistance includes Medicare and Medicaid payment adjustments and an expansion of the Medicare Accelerated and Advance Payment Program, which made available accelerated payments of Medicare funds in order to increase cash flow to providers.

These payments are loans that providers are scheduled to repay beginning one year from the issuance date of each provider’s or supplier’s accelerated or advance payment, with repayment made through automatic recoupment of 25% of Medicare payments otherwise owed to the provider or supplier for eleven months, followed by an increase to 50% for another six months, after which any outstanding balance would be repaid subject to an interest rate of 4%.

We believe these repayments commenced for many of our operators in April 2021 and have adversely impacted, and will continue to adversely impact, operating cash flows of these operators.

Additionally, CMS suspended Medicare sequestration payment adjustments, which would have otherwise reduced payments to Medicare providers by 2%, from May 1, 2020 through December 31, 2020, but also extended sequestration through 2030.

The Bipartisan-Bicameral Omnibus COVID Relief Deal passed in December 2020 further extended the suspension of the Medicare sequestration until March 31, 2021, and it most recently has been further extended from December 31, 2021 through March 31, 2022.

While not limited to healthcare providers, the CARES Act additionally provided payroll tax relief for employers, allowing them to defer payment of employer Social Security taxes that are otherwise owed for wage payments made after March 27, 2020 through December 31, 2020 to December 31, 2021 with respect to 50% of the payroll taxes owed, with the remaining 50% deferred until December 31, 2022.

Quality of Care Initiatives and Additional Requirements Related to COVID-19 .

In addition to COVID-19 reimbursement changes, several regulatory initiatives announced in 2020 and 2021 focused on addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols, vaccine protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes.

In August 2021, CMS announced it was developing an emergency regulation requiring staff vaccinations within the nation’s more than 15,000 Medicare and Medicaid-participating nursing homes, and in September 2021, CMS further announced that the scope of the regulation will be expanded to include workers in hospitals, dialysis facilities, ambulatory surgical settings, and home health agencies.

In addition, recent updates to the Nursing Home Care website and the Five Star Quality Rating System include revisions to the inspection process, adjustment of staffing rating thresholds, the implementation of new quality measures and the inclusion of a staff turnover percentage (over a 12-month period).

Although the American Rescue Plan Act did not allocate specific funds to SNF or ALF providers, approximately $200 million was allocated to quality improvement organizations to provide infection control and vaccination uptake support to SNFs and $500 million has been allocated by the CDC to staffing, training and deployment of state-based nursing home and long-term care “strike teams” to assist facilities with known or suspected COVID-19 outbreaks.

On June 16, 2020, the U.S.

House of Representatives Select Subcommittee on the Coronavirus Crisis announced the launch of an investigation into the COVID-19 response of nursing homes and the use of federal funds by nursing homes during the pandemic.

The Select Subcommittee continued to be active throughout the remainder of 2020 and 2021.

In March 2021, the Oversight Subcommittee of the House Ways and Means Committee held a hearing on examining the impact of private equity in the U.S.

healthcare system, including the impact on quality of care provided within the skilled nursing industry.

These hearings, as well as additional calls for government review of the role of private equity in the U.S.

healthcare industry, could result in legislation imposing additional requirements on our operators.

Reimbursement Generally:

State budgetary concerns, coupled with the implementation of rules under the Healthcare Reform Law (described further below), or prospective changes to the Healthcare Reform Law, may result in additional significant changes in healthcare spending at the state level, which may particularly impact us in states where we have a larger presence, including Florida and Texas.

In Texas in particular, several of our operators have experienced lower operating margins on their SNFs, as compared to other states, as a result of lower Medicaid reimbursement rates and higher labor costs.

Additionally, the need to control Medicaid expenditures may be exacerbated by the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes resulting from the COVID-19 pandemic.

The American Rescue Plan Act contains several provisions designed to increase coverage, expand benefits, and adjust federal financing for state Medicaid programs.

For example, the American Rescue Plan Act increases the FMAP by 10 percentage points for state home and community-based services expenditures beginning April 1, 2021 through March 30, 2022 in an effort to assist seniors and people with disabilities to receive services safely in the community rather than in nursing homes and other congregate care settings.

As a condition for receiving the FMAP increase, states must enhance, expand, or strengthen their Medicaid home and community-based services program during this period.

These potential enhancements to Medicaid reimbursement funding may be offset in certain states by state budgetary concerns, the ability of the state to allocate matching funds and to comply with the new requirements, the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes resulting from the COVID-19 pandemic, and the potential allocation of state Medicaid funds available for reimbursement away from SNFs in favor of home and community-based programs.

These challenges may particularly impact us in states where we have a larger presence, including Florida and Texas.

In Texas in particular, several of our operators have historically experienced lower operating margins on their SNFs, as compared to other states, as a result of lower Medicaid reimbursement rates and higher labor costs.

Our operators in Texas may also be adversely impacted by the expected expiration of an add-on by the state to the daily reimbursement rate for Medicaid patients that will terminate upon expiration of the federally declared public health emergency.

In Florida, while added support to our operators during the pandemic has generally been limited, approximately $100 million in additional FMAP funds for nursing homes was approved by the State in November 2021, with the funds to be distributed through increased Medicaid payment rates over a three-month period.

Since our operators’ profit margins on Medicaid patients are generally relatively low, more than modest reductions in Medicaid reimbursement or an increase in the percentage of Medicaid patients has in the past and may in the future adversely affect our operators’ results of operations and financial condition, which in turn could adversely impact us.

In mid-November 2019, CMS proposed the Medicaid Fiscal Accountability Rule (“MFAR”), which would have modified and refined the current federal portion of Medicaid funding for two programs commonly referred to as the upper payment limit (“UPL”) and provider taxes.

However, the CMS withdrew the proposed rule from the regulatory agenda on September 14, 2020 in response to concerns that had been raised by states and providers about potential unintended consequences of the proposed rule, including significant funding cuts to the Medicaid program annually.

On July 31, 2020, CMS issued a final rule regarding the government fiscal year (“FY”) 2021 Medicare payment rates and quality payment programs for SNFs, with aggregate payments projected to increase by $750 million, or 2.2%, for FY 2021 compared to FY 2020.

This estimated reimbursement increase is attributable to a 2.2% market basket increase factor with a 0.0% reduction for the multifactor productivity adjustment mandated by the Improving Medicare Post-Acute Care Transformation Act of 2014 (“IMPACT Act”).

The annual update is reduced by two percentage points for SNFs that fail to submit required quality data to CMS under the SNF Quality Reporting Program (“QRP”).

The final rule also adopted revised geographic delineations provided by the Office of Management and Budget to identify a provider’s status as an urban or rural facility and to calculate the wage index.

The CMS applied a five percent cap on any decreases in a provider’s wage index from FY 2020 to FY 2021.

On July 29, 2021, CMS issued a final rule regarding the government fiscal year 2022 Medicare payment rates and quality payment programs for SNFs, with aggregate Medicare Part A payments projected to increase by $410 million, or 1.2%, for fiscal year 2022 compared to fiscal year 2021.

This estimated reimbursement increase is attributable to a 2.7% market basket increase factor less a 0.8 percentage point forecast error adjustment and a 0.7 percentage point productivity adjustment, and a $1.2 million decrease due to the proposed reduction to the SNF prospective payment system rates to account for the recent blood-clotting factors exclusion.

The annual update is reduced by two percentage points for SNFs that fail to submit required quality data to CMS under the SNF Quality Reporting Program.

CMS has indicated that these impact figures did not incorporate the SNF Value-Based Program reductions that are estimated to be $184.25 million in fiscal year 2022.

Payments to providers continue to be increasingly tied to quality and efficiency.

The Patient Driven Payment Model (“PDPM”), which was designed by CMS to improve the incentives to treat the needs of the whole patient, rather than the volume of services the patient receives, became effective October 1, 2019 (FY 2020).

The Patient Driven Payment Model (“PDPM”), which was designed by CMS to improve the incentives to treat the needs of the whole patient, became effective October 1, 2019.

Prior to COVID-19, we believed that certain of our operators could realize efficiencies and cost savings from increased concurrent and group therapy under PDPM and some had reported early positive results.

Given the ongoing impacts of COVID-19, many operators are and may continue to be restricted from pursuing concurrent and group therapy and unable to realize these benefits.

Additionally, our operators continue to adapt to the reimbursement changes and other payment reforms resulting from the value based purchasing programs applicable to SNFs under the 2014 Protecting Access to Medicare Act, which became effective on October 1, 2018.

These reimbursement changes have had and may in the future have an adverse effect on the operations and financial condition of some operators and could adversely impact the ability of operators to meet their obligations to us.

On May 27, 2020, CMS added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a skilled nursing facility as a part of the COVID-19 1135 waiver provisions.

These reimbursement changes have had and may, together with any further reimbursement changes to PDPM or value-based purchasing models, in the future have an adverse effect on the operations and financial condition of some operators and could adversely impact the ability of operators to meet their obligations to us.

On May 27, 2020, CMS added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF as a part of the COVID-19 1135 waiver provisions.

The COVID-19 1135 waiver provisions also allow for the facility to bill an originating site fee to CMS for telehealth services provided to Medicare Part B beneficiary residents of the facility when the services are provided by a physician from an alternate location, effective March 6, 2020 through the end of the public health emergency.

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The Office of Inspector General (“OIG”) of HHS has provided long-standing guidance for SNFs regarding compliance with federal fraud and abuse laws.

More recently, the OIG has conducted increased oversight activities and issued additional guidance regarding its findings related to identified problems with the quality of care and the reporting and investigation of potential abuse or neglect at group homes, nursing homes, and skilled nursing facilities.

The OIG has additionally reviewed the staffing levels reported by SNFs as part of its August 2018 and February 2019 Work Plan updates, and included a review of involuntary transfers and discharges from nursing homes in the June 2019 Work Plan updates.

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SNFs are under intense scrutiny for ensuring the quality of care being rendered to residents and appropriate billing practices conducted by the facility.

The Department of Justice (“DOJ”) launched ten regional Elder Justice Task Forces in 2016 which are coordinating and enhancing efforts to pursue SNFs that provide grossly substandard care to their residents.

These Task Forces are composed of representatives from the U.S.

Attorneys’ Offices, State Medicaid Fraud Control Units, state and local prosecutors’ offices, HHS, State Adult Protective Services agencies, Long Term Care Ombudsmen programs, and law enforcement.

The DOJ has indicated that it is seeking to enhance the work of the Elder Justice Initiative to identify potential criminal charges when they uncover false claims for government reimbursements of care.

The DOJ’s civil division has historically used the False Claims Act to pursue nursing homes that bill the federal government for services not rendered or care that is grossly substandard.

In 2020, the DOJ launched a National Nursing Home Initiative to coordinate and enhance civil and criminal enforcement actions against nursing homes with grossly substandard deficiencies such as poor hygiene, lax infection controls, and inadequate nurse staffing levels.

In addition, the CMS announced on August 14, 2020 that the agency has imposed more than $15 million in civil money penalties (“CMPs”) to more than 3,400 nursing homes during the public health emergency for noncompliance with infection control requirements and the failure to report COVID-19 data.

The Department of Justice (“DOJ”) has historically used the False Claims Act to civilly pursue nursing homes that bill the federal government for services not rendered or care that is grossly substandard.

For example, California prosecutors announced in March 2021 an investigation into a skilled nursing provider that is affiliated with one of our operators, alleging the chain manipulated the submission of staffing level data in order to improve its Five Star rating.

In 2020, the DOJ launched a National Nursing Home Initiative to coordinate and enhance civil and criminal enforcement actions against nursing homes with grossly substandard deficiencies.

Such enforcement activities are unpredictable and may develop over lengthy periods of time.

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These laws are enforced by a variety of federal, state and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or whistleblower actions, which have become more frequent in recent years.

Several of our operators have responded to subpoenas and other requests for information regarding their operations in connection with inquiries by the Department of Justice or other regulatory agencies.

In addition, MedEquities Realty Trust, Inc., which we acquired in May 2019, has responded to a Civil Investigative Demand from the Department of Justice in connection with Lakeway Regional Medical Center.

See Note 18 – Commitments and Contingencies .

Several of our operators have responded to subpoenas and other requests for information regarding their operations in connection with inquiries by the DOJ or other regulatory agencies.

In addition, MedEquities Realty Trust, Inc., which we acquired in May 2019, has responded to a Civil Investigative Demand from the DOJ in connection with Lakeway Regional Medical Center.

See Note 20 – Commitments and Contingencies to the Consolidated Financial Statements.

Our operators are subject to various federal, state and local laws and regulations designed to protect the confidentiality and security of patient health information, including the federal Health Insurance Portability and Accountability Act of 1996, as amended, the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and the corresponding regulations promulgated thereunder (collectively referred to herein as “HIPAA”).

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The rule prohibits providers from requiring residents to sign binding arbitration agreements as a condition for receiving care and requires that the agreements specifically grant residents the explicit right to rescind the agreement within thirty calendar days of signing.

A growing number of professional liability and employment related claims have been filed or are threatened to be filed against long-term care providers related to COVID-19.

A number of professional liability and employment related claims have been filed or are threatened to be filed against long-term care providers related to COVID-19.

While such claims may be subject to liability protection provisions within various state executive orders or legislation and/or federal legislation, an adverse resolution of any of legal proceeding or investigations against our operators may involve injunctive relief and/or substantial monetary penalties, either or both of which could have a material adverse effect on our operators’ reputation, business, results of operations and cash flows.

also imposes very high levels of regulation on our U.K.-based operators.

In England, where all of our operators are based, the Care Quality Commission has regulatory oversight authority over the health and social care sectors and is responsible for approving, registering and inspecting our operators and the properties where they provide services.

There is also a detailed legislative and regulatory framework in the U.K.

designed to protect the vulnerable (whether by virtue of age or physical and/or mental impairment) and to prevent abuse.

Each of these regulatory regimes carries significant enforcement powers, including the ability to criminally prosecute offending operators and facilities, impose fines or revoke registrations.

Additionally, under the purview of the Competition and Markets Authority, local authorities are tasked with providing and funding the care needs of eligible residents within the applicable local authority area.

There is ongoing debate and uncertainty within the U.K.

as to how growing care needs will be met and funded in the future, and it is not clear at this stage what, if any, or the extent of such, impact will be on our U.K-based operators.

Additionally, there has been significant legislation passed and guidance issued in the U.K.

in respect of the COVID-19 pandemic.

Much of the legislation or guidance set out the additional precautions, measures or restrictions which were required in the care sector, including infection control measures and vaccination requirements for care sector workers.

In addition, the U.K.

government provided certain support to the care sector, including the provision of free testing and personal protective equipment (“PPE”) in certain settings.

government also provided some financial support to the sector, predominantly to publicly-funded services but also relation to infection control and testing measures it had introduced.

This additional legislation has significantly increased the regulatory burdens under which our U.K.

operators must currently deliver services and continues to have a significant impact on the operations and financial condition of our U.K.

operators, which has been somewhat offset by the level of stimulus provided.

Environmental, Social and Governance ("ESG")

We prioritize environmental, social and governance initiatives that matter most to our business and shareholders.

Our Nominating and Corporate Governance Committee of our Board of Directors has been charged with primary oversight of our sustainability efforts.

The Company has established an ESG Steering Committee, with senior representation from all divisions of the company, that is responsible for advancing the Company’s governance, sustainability, and social programs, including diversity and inclusion.

The Nominating and Corporate Governance Committee exercises oversight of the ESG Steering Committee.

As a triple-net landlord, our third-party operators maintain operational control and responsibility for our real estate on a day-to-day basis.

While our ability to mandate environmental changes to their operations is limited, our tenants are contractually bound to preserve and maintain our properties in good working order and condition.

In connection with this, they are required to meet or exceed annual expenditure thresholds on capital improvements and enhancements of our properties, which in some cases may facilitate improvements in the environmental performance of our properties and reduces energy usage, water usage, and direct and indirect greenhouse gas emissions.

Beginning in 2021, we have also implemented a capital expenditure sustainability initiative to encourage operators to invest in financially beneficial and environmentally enhancing investment projects.

The goal is to incentivize operators to invest in sustainable capital projects that provide a favorable return on investment while reducing the environmental footprint of these operations.

Our due diligence on real estate acquisitions generally includes environmental assessments as part of our analysis to understand the environmental condition of the property, and to determine whether the property meets certain environmental standards.

Similarly, during the due diligence process, we seek to evaluate the risk of physical, natural disaster or extreme weather patterns on the properties we are looking to acquire and to assess their compliance with building codes, which often results in remediations that incorporate sustainable improvements into our properties.

We are committed to providing a positive and engaging work environment for our employees and taking an active role in the betterment of the communities in which our employees live and work.

What changed 10-K

Item 1. Business