10-Q 1 nhc20220331_10q.htm FORM 10-Q nhc20220331_10q.htm
0001047335 NATIONAL HEALTHCARE CORP false --12-31 Q1 2022 0.01 0.01 45,000,000 45,000,000 15,471,331 15,471,331 15,452,033 15,452,033 0.52 0.55 2 15 2,338,000 454 10 0 0 3 332,620 134,706 467,326 25.3 21 2018 2019 2020 2021 7 00010473352022-01-012022-03-31 xbrli:shares 00010473352022-05-01 thunderdome:item iso4217:USD 00010473352021-01-012021-03-31 iso4217:USDxbrli:shares 00010473352022-03-31 00010473352021-12-31 00010473352020-12-31 00010473352021-03-31 0001047335us-gaap:CommonStockMember2020-12-31 0001047335us-gaap:AdditionalPaidInCapitalMember2020-12-31 0001047335us-gaap:RetainedEarningsMember2020-12-31 0001047335us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-31 0001047335us-gaap:NoncontrollingInterestMember2020-12-31 0001047335us-gaap:CommonStockMember2021-01-012021-03-31 0001047335us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-31 0001047335us-gaap:RetainedEarningsMember2021-01-012021-03-31 0001047335us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-31 0001047335us-gaap:NoncontrollingInterestMember2021-01-012021-03-31 0001047335us-gaap:CommonStockMember2021-03-31 0001047335us-gaap:AdditionalPaidInCapitalMember2021-03-31 0001047335us-gaap:RetainedEarningsMember2021-03-31 0001047335us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-31 0001047335us-gaap:NoncontrollingInterestMember2021-03-31 0001047335us-gaap:CommonStockMember2021-12-31 0001047335us-gaap:AdditionalPaidInCapitalMember2021-12-31 0001047335us-gaap:RetainedEarningsMember2021-12-31 0001047335us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-31 0001047335us-gaap:NoncontrollingInterestMember2021-12-31 0001047335us-gaap:CommonStockMember2022-01-012022-03-31 0001047335us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-31 0001047335us-gaap:RetainedEarningsMember2022-01-012022-03-31 0001047335us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-31 0001047335us-gaap:NoncontrollingInterestMember2022-01-012022-03-31 0001047335us-gaap:CommonStockMember2022-03-31 0001047335us-gaap:AdditionalPaidInCapitalMember2022-03-31 0001047335us-gaap:RetainedEarningsMember2022-03-31 0001047335us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-31 0001047335us-gaap:NoncontrollingInterestMember2022-03-31 xbrli:pure utr:Y 0001047335srt:MinimumMember2022-03-31 0001047335srt:MaximumMember2022-03-31 0001047335us-gaap:BuildingAndBuildingImprovementsMembersrt:MinimumMember2022-01-012022-03-31 0001047335us-gaap:BuildingAndBuildingImprovementsMembersrt:MaximumMember2022-01-012022-03-31 0001047335nhc:EquipmentAndFurnitureMembersrt:MinimumMember2022-01-012022-03-31 0001047335nhc:EquipmentAndFurnitureMembersrt:MaximumMember2022-01-012022-03-31 0001047335nhc:RefundableAdvanceFeesMember2022-01-012022-03-31 0001047335nhc:OriginalEntryFeeMember2022-01-012022-03-31 0001047335nhc:AppreciationMember2022-01-012022-03-31 0001047335nhc:ProviderReliefFundUnderCARESActMember2022-01-012022-03-31 0001047335nhc:ProviderReliefFundUnderCARESActMember2021-01-012021-03-31 00010473352020-04-012020-06-30 0001047335us-gaap:OtherNoncurrentLiabilitiesMember2022-03-31 0001047335nhc:SupplementalMedicaidPaymentsMember2022-01-012022-03-31 0001047335nhc:SupplementalMedicaidPaymentsMember2021-01-012021-03-31 0001047335nhc:InpatientServicesMember2022-01-012022-03-31 0001047335nhc:InpatientServicesMember2021-01-012021-03-31 0001047335nhc:HomecareAndHospiceServicesMember2022-01-012022-03-31 0001047335nhc:HomecareAndHospiceServicesMember2021-01-012021-03-31 0001047335nhc:MedicareMember2022-01-012022-03-31 0001047335nhc:MedicareMember2021-01-012021-03-31 0001047335nhc:ManagedCareMember2022-01-012022-03-31 0001047335nhc:ManagedCareMember2021-01-012021-03-31 0001047335nhc:MedicaidMember2022-01-012022-03-31 0001047335nhc:MedicaidMember2021-01-012021-03-31 0001047335nhc:PrivatePayAndOtherMember2022-01-012022-03-31 0001047335nhc:PrivatePayAndOtherMember2021-01-012021-03-31 0001047335nhc:MedicareAndMedicaidMember2022-03-31 0001047335nhc:MedicareAndMedicaidMember2021-12-31 0001047335stpr:FL2022-03-31 0001047335nhc:NationalMember2022-03-31 0001047335nhc:NationalMember2022-01-012022-03-31 0001047335nhc:NationalMember2021-01-012021-03-31 0001047335nhc:WorkersCompensationRevenueMember2022-01-012022-03-31 0001047335nhc:WorkersCompensationRevenueMember2021-01-012021-03-31 0001047335us-gaap:ProfessionalLiabilityInsuranceMember2022-01-012022-03-31 0001047335us-gaap:ProfessionalLiabilityInsuranceMember2021-01-012021-03-31 0001047335nhc:AcquisitionOfCarisMember2021-06-11 0001047335nhc:AcquisitionOfCarisMember2020-12-31 0001047335nhc:InpatientServicesSegmentMember2022-01-012022-03-31 0001047335nhc:HomecareServicesSegmentMember2022-01-012022-03-31 0001047335us-gaap:AllOtherSegmentsMember2022-01-012022-03-31 0001047335nhc:InpatientServicesSegmentMember2021-01-012021-03-31 0001047335nhc:HomecareServicesSegmentMember2021-01-012021-03-31 0001047335us-gaap:AllOtherSegmentsMember2021-01-012021-03-31 0001047335nhc:TwoLeasesWithNHIMember2022-03-31 0001047335nhc:LeaseOneWithNhiMember2022-03-31 0001047335nhc:BothNHILeaseAgreementsMember2022-01-012022-03-31 0001047335nhc:BothNHILeaseAgreementsMember2021-01-012021-03-31 0001047335nhc:SeniorHealthcareFacilitiesMember2022-03-31 0001047335nhc:SeniorHealthcareFacilitiesMember2022-01-012022-03-31 0001047335us-gaap:EquitySecuritiesMember2022-03-31 0001047335us-gaap:EquitySecuritiesMember2021-12-31 0001047335us-gaap:CorporateDebtSecuritiesMember2022-03-31 0001047335us-gaap:CorporateDebtSecuritiesMember2021-12-31 0001047335us-gaap:AssetBackedSecuritiesMember2022-03-31 0001047335us-gaap:AssetBackedSecuritiesMember2021-12-31 0001047335us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMember2022-03-31 0001047335us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMember2021-12-31 0001047335us-gaap:USStatesAndPoliticalSubdivisionsMember2022-03-31 0001047335us-gaap:USStatesAndPoliticalSubdivisionsMember2021-12-31 0001047335nhc:NHICommonStockMember2022-03-31 0001047335nhc:NHICommonStockMember2021-12-31 0001047335us-gaap:FairValueMeasurementsRecurringMember2022-03-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-03-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-03-31 0001047335us-gaap:FairValueMeasurementsRecurringMemberus-gaap:EquitySecuritiesMember2022-03-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EquitySecuritiesMember2022-03-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EquitySecuritiesMember2022-03-31 0001047335us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-03-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-03-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-03-31 0001047335us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2022-03-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2022-03-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2022-03-31 0001047335us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-03-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-03-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-03-31 0001047335us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2022-03-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2022-03-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2022-03-31 0001047335us-gaap:FairValueMeasurementsRecurringMember2021-12-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-31 0001047335us-gaap:FairValueMeasurementsRecurringMemberus-gaap:EquitySecuritiesMember2021-12-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EquitySecuritiesMember2021-12-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EquitySecuritiesMember2021-12-31 0001047335us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-12-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-12-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-12-31 0001047335us-gaap:FairValueMeasurementsRecurringMemberus-gaap:AssetBackedSecuritiesMember2021-12-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:AssetBackedSecuritiesMember2021-12-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:AssetBackedSecuritiesMember2021-12-31 0001047335us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2021-12-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2021-12-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2021-12-31 0001047335us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-12-31 0001047335us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-12-31 0001047335us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-12-31 0001047335nhc:InpatientServicesSegmentMember2020-12-31 0001047335nhc:HomecareAndHospiceSegmentMember2020-12-31 0001047335nhc:HomecareAndHospiceSegmentMember2021-01-012021-03-31 0001047335nhc:InpatientServicesSegmentMember2021-03-31 0001047335nhc:HomecareAndHospiceSegmentMember2021-03-31 0001047335nhc:AcquisitionOfCarisMemberus-gaap:TradeNamesMember2022-01-012022-03-31 0001047335nhc:AcquisitionOfCarisMembernhc:CertificatesOfNeedAndLicensesMember2022-01-012022-03-31 0001047335nhc:SalariesWagesAndBenefitsMember2022-01-012022-03-31 0001047335nhc:SalariesWagesAndBenefitsMember2021-01-012021-03-31 00010473352021-01-012021-12-31 0001047335nhc:ExercisePriceRange1Member2022-01-012022-03-31 0001047335nhc:ExercisePriceRange1Member2022-03-31 0001047335nhc:ExercisePriceRange2Member2022-01-012022-03-31 0001047335nhc:ExercisePriceRange2Member2022-03-31 0001047335us-gaap:SubsequentEventMembernhc:OperationsTransferAgreementsForTransferOfSkilledNursingFacilitiesMember2022-05-032022-05-03 0001047335nhc:SevenSkilledNursingFacilitiesMembernhc:OperationsTransferAgreementsForTransferOfSkilledNursingFacilitiesMember2022-01-012022-03-31 0001047335nhc:SevenSkilledNursingFacilitiesMembernhc:OperationsTransferAgreementsForTransferOfSkilledNursingFacilitiesMember2021-01-012021-03-31 0001047335nhc:SevenSkilledNursingFacilitiesMembernhc:OperationsTransferAgreementsForTransferOfSkilledNursingFacilitiesMember2021-01-012021-12-31 0001047335nhc:COVID19Member2022-01-012022-03-31
 

 

Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ____________

  

Commission file number   001-13489

 

nhc20220331_10qimg001.jpg

 

(Exact name of registrant as specified in its Charter)

  

Delaware

52-2057472

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization

Identification No.)

  

100 E. Vine Street

Murfreesboro, TN

37130

(Address of principal executive offices)

(Zip Code)

  

(615) 8902020

Registrant's telephone number, including area code

  

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading

Symbols(s)

Name of each exchange on which registered

Common, $0.01 par value

NHC

NYSE American

 

Indicate by check mark whether the registrant: (1) Has filed all reports required to be filed by Section 13 or 15(d), of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files).    Yes ☒      No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer

Accelerated filer ☐

  

Non–accelerated filer ☐

Smaller reporting company

  
 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as is defined in Rule 12b–2 of the Exchange Act). Yes    No ☒

 

15,471,431 shares of common stock of the registrant were outstanding as of May 1, 2022.

 



 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)         

 

   

Three Months Ended

March 31

 
   

2022

   

2021

 
                 

Revenues:

               

Net patient revenues

  $ 256,337     $ 216,855  

Other revenues

    12,026       11,369  

Government stimulus income

    10,620       22,749  

Net operating revenues and grant income

    278,983       250,973  
                 

Cost and expenses:

               

Salaries, wages, and benefits

    170,694       149,159  

Other operating

    74,085       66,124  

Facility rent

    10,065       10,063  

Depreciation and amortization

    9,757       10,161  

Interest

    165       244  

Total costs and expenses

    264,766       235,751  
                 

Income from operations

    14,217       15,222  
                 

Other income:

               

Non–operating income

    3,199       6,260  

Unrealized gains on marketable equity securities

    3,126       7,059  
                 

Income before income taxes

    20,542       28,541  

Income tax provision

    (5,193

)

    (7,233

)

Net income

    15,349       21,308  

Net income attributable to noncontrolling interest

    (31

)

    (41

)

                 

Net income attributable to National HealthCare Corporation

  $ 15,318     $ 21,267  
                 

Earnings per share attributable to National HealthCare Corporation stockholders:

               

Basic

  $ 0.99     $ 1.39  

Diluted

  $ 0.99     $ 1.38  
                 

Weighted average common shares outstanding:

         

Basic

    15,416,836       15,327,520  

Diluted

    15,463,855       15,390,076  
                 

Dividends declared per common share

  $ 0.55     $ 0.52  

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.  

 

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Comprehensive Income/(Loss)

(unaudited in thousands)

 

   

Three Months Ended

March 31

 
   

2022

   

2021

 
                 

Net income

  $ 15,349     $ 21,308  
                 

Other comprehensive loss:

               

Unrealized losses on investments in marketable debt securities

    (6,327

)

    (2,440

)

Reclassification adjustment for realized gains on sales of marketable debt securities

    (107

)

    -  

Income tax benefit related to items of other comprehensive income

    1,374       518  

Other comprehensive loss, net of tax

    (5,060

)

    (1,922

)

                 

Net income attributable to noncontrolling interest

    (31

)

    (41

)

                 

Comprehensive income attributable to National HealthCare Corporation

  $ 10,258     $ 19,345  

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets

(in thousands)

 

   

March 31, 2022

   

December 31,

2021

 
   

unaudited

         

Assets

               

Current Assets:

               

Cash and cash equivalents

  $ 56,993     $ 107,607  

Restricted cash and cash equivalents, current portion

    17,187       10,407  

Marketable equity securities

    118,048       113,108  

Marketable debt securities

    30,987       35,310  

Restricted marketable equity securities

    25,249       26,958  

Restricted marketable debt securities, current portion

    13,703       20,727  

Accounts receivable

    101,748       96,124  

Inventories

    8,586       8,582  

Prepaid expenses and other assets

    11,519       7,815  

Total current assets

    384,020       426,638  
                 

Property and Equipment:

               

Property and equipment, at cost

    1,073,293       1,064,337  

Accumulated depreciation and amortization

    (553,092

)

    (543,341

)

Net property and equipment

    520,201       520,996  
                 

Other Assets:

               

Restricted cash and cash equivalents, less current portion

    1,736       1,729  

Restricted marketable debt securities, less current portion

    118,098       116,063  

Deposits and other assets

    4,956       4,499  

Operating lease right-of-use assets

    150,191       156,116  

Goodwill

    168,295       168,295  

Intangible assets

    7,038       7,038  

Investments in unconsolidated companies

    2,476       2,022  

Total other assets

    452,790       455,762  

Total assets

  $ 1,357,011     $ 1,403,396  

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets (continued)

(in thousands, except share and per share amounts)

 

  

March 31, 2022

  

December 31,

2021

 
  

unaudited

     

Liabilities and Stockholders Equity

        

Current Liabilities:

        

Trade accounts payable

 $25,842  $22,488 

Finance lease obligations, current portion

  4,766   4,695 

Operating lease liabilities, current portion

  28,005   27,574 

Accrued payroll

  73,877   106,698 

Amounts due to third party payors

  17,319   17,595 

Accrued risk reserves, current portion

  30,890   31,134 

Other current liabilities

  21,760   20,059 

Provider relief funds

  516   9,443 

Contract liabilities

  5,003   15,022 

Dividends payable

  8,509   8,493 

Total current liabilities

  216,487   263,201 
         

Finance lease obligations, less current portion

  4,627   5,845 

Operating lease liabilities, less current portion

  122,186   128,542 

Accrued risk reserves, less current portion

  70,523   66,914 

Refundable entrance fees

  6,097   7,011 

Deferred income taxes

  8,078   6,852 

Other noncurrent liabilities

  17,957   16,571 

Total liabilities

  445,955   494,936 
         

Equity:

        

Common stock, $.01 par value; 45,000,000 shares authorized; 15,471,331 and 15,452,033 shares, respectively, issued and outstanding

  154   154 

Capital in excess of par value

  232,733   232,167 

Retained earnings

  675,887   669,078 

Accumulated other comprehensive income (loss)

  (3,455

)

  1,605 

Total National HealthCare Corporation stockholders’ equity

  905,319   903,004 

Noncontrolling interest

  5,737   5,456 

Total equity

  911,056   908,460 

Total liabilities and equity

 $1,357,011  $1,403,396 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Cash Flows

(unaudited in thousands)  

 

   

Three Months Ended

March 31

 
   

2022

   

2021

 

Cash Flows From Operating Activities:

               

Net income

  $ 15,349     $ 21,308  

Adjustments to reconcile net income to net cash (used in)/provided by operating activities:

               

Depreciation and amortization

    9,757       10,161  

Equity in earnings of unconsolidated investments

    (454

)

    (2,911

)

Distributions from unconsolidated investments

    -       5,897  

Unrealized gains on marketable equity securities

    (3,126

)

    (7,059

)

Gains on sale of marketable securities

    (45

)

    -  

Deferred income taxes

    2,600       1,596  

Stock–based compensation

    712       496  

Changes in operating assets and liabilities:

               

Accounts receivable

    (5,624

)

    (4,622

)

Inventories

    (4

)

    664  

Prepaid expenses and other assets

    (4,385

)

    (601

)

Trade accounts payable

    3,354       (4,999

)

Accrued payroll

    (32,821

)

    (21,777

)

Amounts due to third party payors

    (276

)

    (880

)

Accrued risk reserves

    3,365       1,945  

Provider relief funds

    (8,927

)

    7,442  

Contract liabilities

    (10,019

)

    -  

Other current liabilities

    1,701       4,331  

Other noncurrent liabilities

    1,386       1,598  

Net cash (used in)/provided by operating activities

    (27,457

)

    12,589  

Cash Flows From Investing Activities:

               

Purchases of property and equipment

    (8,962

)

    (4,327

)

Collections of notes receivable

    224       255  

Purchases of marketable securities

    (14,128

)

    (7,866

)

Proceeds from sale of marketable securities

    16,946       6,086  

Net cash used in investing activities

    (5,920

)

    (5,852

)

Cash Flows From Financing Activities:

               

Principal payments under finance lease obligations

    (1,147

)

    (1,081

)

Dividends paid to common stockholders

    (8,493

)

    (7,988

)

Noncontrolling interest contributions

    250       -  

Issuance of common shares

    -       327  

Repurchase of common shares

    (146

)

    (278

)

Entrance fee refunds

    (914

)

    (128

)

Net cash used in financing activities

    (10,450

)

    (9,148

)

Net Decrease in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents

    (43,827

)

    (2,411

)

Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period

    119,743       158,502  

Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period

  $ 75,916     $ 156,091  
                 

Balance Sheet Classifications:

               

Cash and cash equivalents

  $ 56,993     $ 134,107  

Restricted cash and cash equivalents

    18,923       21,984  

Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents

  $ 75,916     $ 156,091  

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Stockholders Equity

(in thousands, except share and per share amounts)

(unaudited)

 

  

Common Stock

  

Capital in

Excess of

  

Retained

  

Accumulated

Other

Comprehensive

  

Non-

controlling

  

Total

Stockholders’

 
  

Shares

  

Amount

  

Par Value

  

Earnings

  

Income (Loss)

  

Interest

  

Equity

 

Balance at January 1, 2021

  15,369,745  $153  $226,943  $563,024  $5,057  $3,083  $798,260 

Net income

           21,267      41   21,308 

Other comprehensive loss

              (1,922

)

     (1,922

)

Stock–based compensation

        496            496 

Shares sold – options exercised

  24,331   1   326            327 

Repurchase of common shares

  (3,936

)

     (278

)

           (278

)

Dividends declared to common stockholders ($0.52 per share)

  -      -   (8,003

)

        (8,003

)

Balance at March 31, 2021

  15,390,140  $154  $227,487  $576,288  $3,135  $3,124   810,188 

 

 

  

Common Stock

  

Capital in

Excess of

  

Retained

  

Accumulated

Other

Comprehensive

  

Non-

controlling

  

Total

Stockholders’

 
  

Shares

  

Amount

  

Par Value

  

Earnings

  

Income (Loss)

  

Interest

  

Equity

 

Balance at January 1, 2022

  15,452,033  $154  $232,167  $669,078  $1,605  $5,456  $908,460 

Net income

           15,318      31   15,349 

Equity contributed by noncontrolling interest

                 250   250 

Other comprehensive loss

              (5,060

)

     (5,060

)

Stock–based compensation

        712            712 

Shares sold – options exercised

  21,463                   

Repurchase of common shares

  (2,165

)

     (146

)

           (146

)

Dividends declared to common stockholders ($0.55 per share)

           (8,509

)

        (8,509

)

Balance at March 31, 2022

  15,471,331  $154  $232,733  $675,887  $(3,455

)

 $5,737   911,056 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

NATIONAL HEALTHCARE CORPORATION

Notes to Interim Condensed Consolidated Financial Statements

March 31, 2022

(unaudited) 

 

 

 

Note 1 Description of Business

 

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of March 31, 2022, we operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,456 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital, 35 homecare agencies, and 29 hospice agencies. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.

 

 

 

Note 2 Summary of Significant Accounting Policies

 

The listing below is not intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles (“GAAP”), with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited December 31, 2021 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, 2021 consolidated financial statements are available at our web site: www.nhccare.com.

 

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations.

 

We assume that users of these interim financial statements have read or have access to the audited December 31, 2021 consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons.

 

Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period, including but not limited to, the potential future effects of the novel coronavirus (“COVID-19”).

 

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. These amounts are due from patients, governmental programs, and other third-party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations.

 

9

 

The Company recognizes revenue as its performance obligations are completed. Routine services are treated as a single performance obligation satisfied over time as services are rendered. These routine services represent a bundle of services that are not capable of being distinct. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time when those services are rendered.  Contract liabilities are recorded for payments the Company receives in which performance obligations have not been completed.

 

The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third party payors. Contractual adjustments are based on contractual agreements and historical experience. 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. Bad debt expense was $2,536,000 and $919,000 for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, and December 31, 2021, the Company has recorded allowance for doubtful accounts of $6,726,000 and $6,411,000, respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

 

Other Revenues

 

Other revenues include revenues from the provision of insurance services, management and accounting services to other long–term care providers, and rental income. Our insurance revenues consist of premiums that are generally paid in advance and then amortized into income over the policy period. We charge for management services based on a percentage of net revenues. We charge for accounting services based on a monthly fee or a fixed fee per bed of the healthcare center under contract. We record other revenues as the performance obligations are satisfied based on the terms of our contractual arrangements.

 

We recognize rental income based on the terms of our operating leases. Under certain of our leases, we receive variable rent, which is based on the increase in revenues of a lessee over a base year. We recognize variable rent annually or monthly, as applicable, when, based on the actual revenue of the lessee is earned.

 

Government Grants

 

In the absence of specific guidance to account for government grants under U.S. GAAP, we have concluded to account for government grants in accordance with International Accounting Standard (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance, and as such, we recognize grant income on a systematic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate.   

 

Segment Reporting

 

In accordance with the provisions of Accounting Standards Codification ("ASC") 280, Segment Reporting, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and one behavioral health hospital, and (2) homecare and hospice services. 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. See Note 7 for further disclosure of the Company’s operating segments.

 

Other Operating Expenses

 

Other operating expenses include the costs of care and services that we provide to the residents of our facilities and the costs of maintaining our facilities. Our primary patient care costs include drugs, medical supplies, purchased professional services, food, and professional liability insurance and licensing fees. The primary facility costs include utilities and property insurance.

 

General and Administrative Costs

 

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $5,787,000 and $5,369,000 for the three months ended March 31, 2022 and 2021, respectively.

 

Long-Term Leases

 

The Company’s lease portfolio primarily consists of finance and operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare and hospice offices, and pharmacy warehouses. The original terms of the leases typically range from two to fifteen years. Several of the real estate leases include renewal options which vary in length and may not include specific rent renewal amounts. We determine if an arrangement is a lease at inception of a contract. We determine the lease term by assuming exercise of renewal options that are reasonably certain.

 

10

 

The Company records right-of-use assets and liabilities for non-cancelable real estate operating leases with original or remaining lease terms in excess of one year. Leases with a lease term of 12 months or less at inception are not recorded and are expensed on a straight-line basis over the lease term. We recognize lease components and non-lease components together and not as separate parts of a lease for real estate leases.

 

Operating lease right-of-use assets and liabilities are recorded at the present value of the lease payments over the lease term. The present value of the lease payments are discounted using the incremental borrowing rate associated with each lease. The variable components of the lease payment that fluctuate with the operations of a health facility are not included in determining the right-of-use assets and lease liabilities. Rather, these variable components are expensed as incurred.

 

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation is provided by the straight-line method over the expected useful lives of the assets estimated as follows: buildings and improvements, 20-40 years and equipment and furniture, 3-15 years. Leasehold improvements are amortized over periods that do not exceed the non-cancelable respective lease terms using the straight-line method.

 

Finance leases are recorded at cost. Finance leases are amortized in accordance with the provision codified within ASC 842, Leases. Amortization of finance lease assets is included in depreciation and amortization expense.

 

Business Combinations

 

We account for acquisitions using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Acquisitions are accounted for as purchases and are included in our consolidated financial statements from their respective acquisition dates. Assets acquired and liabilities assumed, if any, are measured at fair value on the acquisition date using the appropriate valuation method. Goodwill generated from acquisitions is recognized for the excess of the purchase price over tangible and identifiable intangible assets. In determining the fair value of identifiable assets, we use various valuation techniques. These valuation methods require us to make estimates and assumptions surrounding projected revenues and costs, future growth, and discount rates.

 

Goodwill and Other Intangible Assets

 

Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not amortized but is subject to an annual impairment test. We perform our annual goodwill impairment assessment on the first day of the fourth quarter.  Tests are performed more frequently if events occur, or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

 

The Company’s indefinite-lived intangible assets consist of trade names and certificates of need and licenses. The Company reviews indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.

 

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. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.

 

Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.

 

We are principally self-insured for incidents occurring in all centers owned or leased by us. 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.

 

11

 

Continuing Care Contracts

 

We have one continuing care retirement center (“CCRC”) within our operations. Residents at this retirement center may enter into continuing care contracts with us. The contracts provide that 10% of the resident entry fee becomes non-refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lessor of the price at which the apartment is re-assigned or 90% of the original entry fee, plus 40% of any appreciation if the apartment value exceeds the original resident’s entry fee.

 

Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarily determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are not included as part of the transaction price and are classified as noncurrent liabilities section of our consolidated balance sheets. As of March 31, 2022, and December 31, 2021, we have recorded refundable entrance fees in the amount of $6,097,000 and $7,011,000, respectively.

 

We also annually estimate the present value of the cost of future services and the use of facilities to be provided to the current CCRC residents and compare that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the cost of future services exceeds the related anticipated revenues, a liability is recorded with a corresponding charge to income. As of March 31, 2022, and December 31, 2021, we have recorded a future service obligation liability in the amount of $2,338,000. This obligation is reflected within other noncurrent liabilities in the interim condensed consolidated balance sheets. 

 

Other Noncurrent Liabilities

 

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions, deferred revenue, and obligations to provide future services to our CCRC residents. Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”) and the non-refundable portion (10%) of CCRC entrance fees being amortized over the remaining life expectancies of the residents.

 

Noncontrolling Interest

 

The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of the subsidiary earnings, contributions, and distributions.

 

Variable Interest Entities

 

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) have the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

 

The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and may or may not be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in unconsolidated companies” in the interim condensed consolidated balance sheets.

 

Reclassifications

 

Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements. 

 

 

Note 3 Coronavirus Pandemic

 

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. The U.S. government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. The laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective is the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Through the CARES Act, as well as the Paycheck Protection Program and Health Care Enhancement Act ("PPPCHE"), the federal government allocated $178 billion to the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.    

 

12

 

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 $10,620,000 and $22,749,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 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 the U.S. Department of Health and Human Services (“HHS”).

 

Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program. The expanded Medicare Accelerated and Advance Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received approximately $51,253,000 as part of this program. These funds are applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. During the first eleven months after repayment began, repayment occurs through an automatic recoupment of twenty-five percent of Medicare payments. During the succeeding nine months, repayment will occur through an automatic recoupment of fifty percent of Medicare payments. Any remaining balance that was not paid through the recoupment process within twenty-nine months of receipt of the funds will be required to be paid on-demand, subject to an interest rate of four percent. Recoupment of the accelerated payments began in the second quarter of 2021. As of March 31, 2022 and December 31, 2021, $5,003,000 and $15,022,000, respectively, of the accelerated payments remain and are reflected within contract liabilities in the interim condensed consolidated balance sheet.

 

The CARES Act and subsequent related legislation temporarily suspended Medicare sequestration beginning May 1, 2020 through March 31, 2022. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. Beginning April 1, 2022, the sequestration reductions will then be 1% from April 1, 2022 through June 30, 2022. The full 2% reduction is scheduled to go back into effect July 1, 2022. The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension, which the sequestration reduction for 2030 has been increased up to 3%.

 

The CARES Act also temporarily permitted employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would have been due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. At March 31, 2022 and December 31, 2021, we have deferred $10,545,000 of the Company’s share of the social security taxes included in the current liabilities section of the consolidated balance sheet. 

 

We have also received supplemental Medicaid payments from many of the states in which we operate to help mitigate the incremental costs resulting from the COVID-19 public health emergency. We have recorded $5,538,000 and $3,955,000 in net patient revenues for these supplemental Medicaid payments for the three months ended March 31, 2022 and 2021, respectively.

 

13

 
 

Note 4 Net Patient Revenues

 

The Company disaggregates revenue from contracts with customers by service type and by payor.

 

Revenue by Service Type

 

The Company’s net patient services can generally be classified into the following two categories: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and a behavioral health hospital, and (2) homecare and hospice services (in thousands).

 

   

Three Months Ended

March 31

 
   

2022

   

2021

 

Net patient revenues:

               

Inpatient services

  $ 224,842     $ 203,242  

Homecare and hospice

    31,495       13,613  

Total net patient revenue

  $ 256,337     $ 216,855  

 

For inpatient and hospice services, revenue is recognized on a daily basis as each day represents a separate contract and performance obligation. For homecare, revenue is recognized when services are provided based on the number of days of service rendered in the period of care or on a per-visit basis. Typically, patients and third-party payors are billed monthly after services are performed or the patient is discharged, and payments are due based on contract terms.

 

As our performance obligations relate to contracts with a duration of one year or less, the Company is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients are typically under no obligation to remain admitted in our facilities or under our care.  As the period between the time of service and time of payment is typically one year or less, the Company did not adjust for the effects of a significant financing component.

 

Revenue by Payor

 

Certain groups of patients receive funds to pay the cost of their care from a common source. The following table sets forth sources of net patient revenues for the periods indicated:

 

   

Three Months Ended

March 31

 

Source

 

2021

   

2020

 

Medicare

    37%       35%  

Managed Care

    10%       12%  

Medicaid

    28%       29%  

Private Pay and Other

    25%       24%  

Total

    100%       100%  

 

Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days (there is temporary relief from the three-day hospital stay during the COVID-19 emergency). For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services.

 

For homecare services, Medicare pays based on the acuity level of the patient and based on periods of care. A period of care is defined as a length of care up to 30 days with multiple continuous periods allowed. The services covered by the payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit.

 

14

 

For hospice services, Medicare pays a daily rate to cover the hospice’s costs for providing services included in the patient care plan. Medicare makes daily payments based on 1 of 4 levels of hospice care. All hospice care and services offered to patients and their families must follow an individualized written plan of care that meets the patient’s needs.

 

Our hospice service revenue is subject to certain limitations on payments from Medicare. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. If applicable, we record these cap adjustments as a reduction to revenue.

 

Medicaid is operated by individual states with the financial participation of the federal government. The states in which we operate currently use prospective cost–based reimbursement systems. Under cost–based reimbursement systems, the skilled nursing facility is reimbursed for the reasonable direct and indirect allowable costs it incurred in a base year in providing routine resident care services as defined by the program.

 

Private pay, managed care, and other payment sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration. Private paying patients, private insurance carriers and the Veterans Administration generally pay based on the healthcare center's charges or specifically negotiated contracts. For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills for room and board charges, with the remittance being due on receipt of the statement and generally by the 10th day of the month the services are performed.

 

Certain managed care payors for homecare services pay on a per-visit basis. This revenue is recorded on an accrual basis based upon the date of services at amounts equal to its established or estimated per-visit rates.     

 

Contract Liabilities

 

Included in the Company’s interim condensed consolidated balance sheets are contract liabilities, which represent payments the Company receives in advance of services provided. As of March 31, 2022 and December 31, 2021, the Company has recorded $5,003,000 and $15,022,000, respectively, in contract liabilities related to receipts from the Medicare Accelerated and Advance Payment Program.  Recoupment of the accelerated payments began in the second quarter of 2021.

 

A summary of the contract liabilities are follows (in thousands):

 

Balance at December 31, 2021

  $ 15,022  

Payments received

    -  

Payments recouped

    (10,019

)

Balance at March 31, 2022

  $ 5,003  

 

Third Party Payors

 

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties, and exclusion from the Medicare and Medicaid programs. We believe that we are following all applicable laws and regulations.

 

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. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations. We believe that any differences between the net revenues recorded, and final determination will not materially affect the consolidated financial statements. We have made provisions of approximately $17,319,000 and $17,595,000 as of March 31, 2022 and December 31, 2021, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

 

 

 

Note 5 Other Revenues

 

Other revenues are outlined in the table below. Revenues from rental income include health care real estate properties owned by us and leased to third party operators. Revenues from management and accounting services include fees provided to manage and provide accounting services to other healthcare operators. Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly owned insurance subsidiaries have written for certain healthcare operators to which we provide management or accounting services. "Other" revenues include miscellaneous health care related earnings (in thousands).

 

   

Three Months Ended

March 31

 
   

2022

   

2021

 

Rental income

  $ 5,982     $ 5,647  

Management and accounting services fees

    4,304       4,324  

Insurance services

    1,247       1,264  

Other

    493       134  

Total other revenues

  $ 12,026     $ 11,369  

 

15

 

Rental Income

 

The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators. Additionally, we sublease four Florida skilled nursing facilities included in our lease from National Health Investors (“NHI”) as noted in Note 8 – Long Term Leases.

 

Management Fees from National Health Corporation

 

We manage five skilled nursing facilities owned by National Health Corporation (“National”). For the three months ended March 31, 2022 and 2021, we recognized management fees and interest on management fees of $981,000 and $896,000, respectively, for these centers.

 

Insurance Services

 

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 were $728,000 and $753,000, respectively. Associated losses and expenses are reflected in the interim condensed consolidated statements of operations as "Salaries, wages and benefits."

 

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 were $519,000 and $511,000, respectively. Associated losses and expenses including those for self–insurance are included in the interim condensed consolidated statements of operations as "Other operating costs and expenses".

 

 

 

Note 6 NonOperating Income

 

Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on sales of marketable securities, and interest income (in thousands).

 

   

Three Months Ended

March 31

 
   

2022

   

2021

 

Equity in earnings of unconsolidated investments

  $ 454     $ 2,911  

Dividends and net realized gains on sales of securities

    1,753       1,962  

Interest income

    992       1,387  

Total non-operating income

  $ 3,199     $ 6,260  

 

Caris HealthCare, L.P.

 

On June 11, 2021, the Company acquired the remaining 24.9% equity interest in Caris HealthCare, L.P. (“Caris”). Prior to the June 11, 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 will no longer be accounted for as an equity method investment.

 

16

 
 

Note 7 Business Segments

 

The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our behavioral health hospital; 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. For additional information on these reportable segments see Note 2Summary of Significant Accounting Policies.

 

The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.

 

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

 

   

Three Months Ended March 31, 2022

 
   

Inpatient
Services

   

Homecare

and Hospice

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 224,842     $ 31,495     $ -     $ 256,337  

Other revenues

    114       -       11,912       12,026  

Government stimulus income

    10,620       -       -       10,620  

Net operating revenues and grant income

    235,576       31,495       11,912       278,983  
                                 

Costs and expenses:

                               

Salaries, wages, and benefits

    142,185       19,401       9,108       170,694  

Other operating

    64,383       7,095       2,607       74,085  

Rent

    8,347       592       1,126       10,065  

Depreciation and amortization

    8,838       113       806       9,757  

Interest

    165       -       -       165  

Total costs and expenses

    223,918       27,201       13,647       264,766  
                                 

Income (loss) from operations

    11,658       4,294       (1,735

)

    14,217  

Non-operating income

    -       -       3,199       3,199  

Unrealized gains on marketable equity securities

    -       -       3,126       3,126  
                                 

Income before income taxes

  $ 11,658     $ 4,294     $ 4,590     $ 20,542  

 

 

 

   

Three Months Ended March 31, 2021

 
   

Inpatient
Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 203,242     $ 13,613     $ -     $ 216,855  

Other revenues

    98       -       11,271       11,369  

Government stimulus income

    22,749       -       -       22,749  

Net operating revenues and grant income

    226,089       13,613       11,271       250,973  
                                 

Costs and expenses:

                               

Salaries, wages, and benefits

    131,811       9,435       7,913       149,159  

Other operating

    61,808       1,915       2,401       66,124  

Rent

    8,194       431       1,438       10,063  

Depreciation and amortization

    9,263       87       811       10,161  

Interest

    244       -       -       244  

Total costs and expenses

    211,320       11,868       12,563       235,751  
                                 

Income/(loss) from operations

    14,769       1,745       (1,292

)

    15,222  

Non-operating income

    -       -       6,260       6,260  

Unrealized gains on marketable equity securities

    -       -       7,059       7,059  
                                 

Income before income taxes

  $ 14,769     $ 1,745     $ 12,027     $ 28,541  

 

17

 
 

Note 8 Long-Term Leases

 

Operating Leases

 

At March 31, 2022, we leased from NHI the real property of 35 skilled nursing facilities, seven assisted living centers and three independent living centers under two separate lease agreements. As part of the first lease agreement, we sublease four Florida skilled nursing facilities to a third-party operator. Base rent expense under both NHI lease agreements totals $34,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over a base year. Total facility rent expense to NHI was $9,252,000 and $9,411,000 for the three months ended March 31, 2022 and 2021, respectively.

 

Finance Leases

 

At March 31, 2022, we leased and operated three senior healthcare facilities in the state of Missouri under three separate lease agreements. Two of the healthcare facilities are skilled nursing facilities that also include assisted living facilities and the third healthcare facility is a memory care facility. Each of the leases is a ten-year lease with two five–year renewal options. Under the terms of the leases, base rent totals $5,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over the 2014 base year.

 

Minimum Lease Payments

 

The following table summarizes the maturity of our finance and operating lease liabilities as of March 31, 2022 (in thousands):

 

   

Finance

Leases

   

Operating

Leases

 

2023

  $ 5,200     $ 36,046  

2024

    4,767       35,489  

2025

    -       35,033  

2026

    -       34,756  

2027

    -       26,704  

Thereafter

    -       4,888  

Total minimum lease payments

    9,967       172,916  

Less: amounts representing interest

    (574

)

    (22,725

)

Present value of future minimum lease payments

    9,393       150,191  

Less: current portion

    (4,766

)

    (28,005

)

Noncurrent lease liabilities

  $ 4,627     $ 122,186  

 

 

 

Note 9 Earnings per Share

 

Basic net income per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income per share reflects the potential dilution that would have occurred if securities to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.

 

The following table summarizes the earnings and the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands, except for share and per share amounts):

 

   

Three Months Ended

March 31

 
   

2022

   

2021

 

Basic:

               

Weighted average common shares outstanding

    15,416,836       15,327,520  

Net income attributable to National HealthCare Corporation

  $ 15,318     $ 21,267  

Earnings per common share, basic

  $ 0.99     $ 1.39  
                 

Diluted:

               

Weighted average common shares outstanding

    15,416,836       15,327,520  

Effects of dilutive instruments

    47,019       62,556  

Weighted average common shares outstanding

    15,463,855       15,390,076  
                 

Net income attributable to National HealthCare Corporation

  $ 15,318     $ 21,267  

Earnings per common share, diluted

  $ 0.99     $ 1.38  

 

18

 
 

Note 10 Investments in Marketable Securities

 

Our investments in marketable equity securities are carried at fair value with the changes in unrealized gains and losses recognized in our results of operations at each measurement date. Our investments in marketable debt securities are classified as available for sale securities and carried at fair value with the unrealized gains and losses recognized through accumulated other comprehensive income at each measurement date. Any credit related decline in fair market values of our available for sale debt securities are recorded in our results of operations through an allowance for credit losses. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 11 for a description of the Company's methodology for determining the fair value of marketable securities.

 

Marketable securities consist of the following (in thousands):

 

  

March 31, 2022

  

December 31, 2021

 
  

Amortized

Cost

  

Fair

Value

  

Amortized

Cost

  

Fair

Value

 

Investments available for sale:

                

Marketable equity securities

 $30,176  $118,048  $30,176  $113,108 

Corporate debt securities

  17,030   16,554   19,038   18,843 

Asset-backed securities

  501   493   1,481   1,469 

U.S. Treasury securities

  14,189   13,940   15,082   14,998 

Restricted investments available for sale:

                

Marketable equity securities

  25,546   25,249   25,442   26,958 

Corporate debt securities

  62,399   61,699   60,816   62,936 

Asset-based securities

  30,715   29,982   32,918   33,301 

U.S. Treasury securities

  37,403   35,181   33,052   32,630 

State and municipal securities

  4,972   4,939   7,700   7,923 
  $222,931  $306,085  $225,705   312,166 

 

Included in the marketable equity securities are the following (in thousands, except share amounts):

 

  

March 31, 2022

  

December 31, 2021

 
  

Shares

  

Cost

  

Fair

Value

  

Shares

  

Cost

  

Fair

Value

 

NHI Common Stock

  1,630,642  $24,734  $96,224   1,630,642  $24,734  $93,713 

 

The amortized cost and estimated fair value of debt securities classified as available for sale, by contractual maturity, are as follows (in thousands):

 

  

March 31, 2022

  

December 31, 2021

 
  

Cost

  

Fair

Value

  

Cost

  

Fair

Value

 

Maturities:

                

Within 1 year

 $34,236  $34,159  $32,718  $32,843 

1 to 5 years

  89,482   87,771   95,293   96,937 

6 to 10 years

  43,491   40,858   41,580   41,835 

Over 10 years

        496   485 
  $167,209  $162,788  $170,087  $172,100 

 

19

 

Gross unrealized gains related to marketable equity securities are $88,514,000 and $85,394,000 as of March 31, 2022 and December 31, 2021, respectively. Gross unrealized losses related to marketable equity securities are $939,000 and $946,000 as of March 31, 2022 and December 31, 2021, respectively. For the three months ended March 31, 2022 and 2021, the Company recognized net unrealized gains of $3,126,000 and $7,059,000, respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statements of operations.

 

Gross unrealized gains related to available for sale marketable debt securities are $484,000 and $3,189,000 as of March 31, 2022 and December 31, 2021, respectively. Gross unrealized losses related to available for sale marketable debt securities are $4,905,000 and $1,176,000 as of March 31, 2022 and December 31, 2021, respectively. The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related.

 

The Company has not recognized any credit related impairments for the three months ended  March 31, 2022 and 2021.

 

For the marketable securities in gross unrealized loss positions, (a) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (b) the Company expects that the contractual principal and interest will be received on the investment securities.

 

Proceeds from the sale of marketable securities during the three months ended March 31, 2022 and 2021 were $16,946,000 and $6,086,000, respectively. Investment gains of $45,000 were realized on these sales during the three months ended March 31, 2022. No investment gains were realized on these sales during the three months ended March 31, 2021.

 

 

 

Note 11 Fair Value Measurements

 

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value:

 

 

Level 1 – The valuation is based on quoted prices in active markets for identical instruments.

 

Level 2 – The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model–based valuation techniques for which all significant assumptions are observable in the market.

 

Level 3 – The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

The following table summarizes fair value measurements by level at March 31, 2022 and December 31, 2021 for assets and liabilities measured at fair value on a recurring basis (in thousands):

 

   

Fair Value Measurements Using

 

March 31, 2022

 

Fair

Value

   

Quoted

Prices in

Active
Markets

For Identical

Assets

(Level 1)

   

Significant

Other

Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Cash and cash equivalents

  $ 56,993     $ 56,993     $     $  

Restricted cash and cash equivalents

    18,923       18,923              

Marketable equity securities

    143,297       143,297              

Corporate debt securities

    78,253       43,059       35,194        

Mortgage–backed securities

    30,475             30,475        

U.S. Treasury securities

    49,121       49,121              

State and municipal securities

    4,939             4,939        

Total financial assets

  $ 382,001     $ 311,393     $ 70,608     $  

 

20

 
   

Fair Value Measurements Using

 

December 31, 2021

 

Fair

Value

   

Quoted

Prices in

Active

Markets

For Identical

Assets

(Level 1)

   

Significant

Other

Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 

Cash and cash equivalents

  $ 107,607     $ 107,607     $     $  

Restricted cash and cash equivalents

    12,136       12,136              

Marketable equity securities

    140,066       140,066              

Corporate debt securities

    81,779       50,005       31,774        

Asset–backed securities

    34,770             34,770        

U.S. Treasury securities

    47,628       47,628              

State and municipal securities

    7,923             7,923        

Total financial assets

  $ 431,909     $ 357,442     $ 74,467     $  

 

 

 

Note 12 Goodwill and Other Intangible Assets

 

At March 31, 2022, the Company reviewed the carrying value of goodwill for impairment indicators, including due to the events and circumstances surrounding the Coronavirus Pandemic ("COVID-19"). As a result of the review, there were no impairment indicators regarding the Company’s goodwill during the three months ended March 31, 2022 that required a quantitative test to be performed. However, our accounting estimates could materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses.

 

At March 31, 2022, the following table represents the activity related to our goodwill by segment (in thousands):

 

   

Inpatient

Services

   

Homecare

and Hospice

   

All Other

   

Total

 

January 1, 2022

  $ 3,741     $ 164,554     $     $ 168,295  

Additions

                       

March 31, 2022

  $ 3,741     $ 164,554     $     $ 168,295  

 

We also have recorded indefinite-lived intangible assets that consist of trade names ($4,340,000) and certificates of need and licenses ($2,698,000).

 

 

 

Note 13 - Stock Repurchase Program

 

During the three months ended March 31, 2022, the Company repurchased 2,165 shares of its common stock for a total cost of $146,000. During the three months ended March 31, 2021, the Company repurchased 3,936 shares of its common stock for a total cost of $278,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

 

 

 

Note 14 StockBased Compensation

 

NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled $712,000 and $496,000 for the three months ended March 31, 2022 and 2021, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

 

At March 31, 2022, the Company had $4,432,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate three-year period.

 

21

 

Stock Options

 

The following table summarizes the significant assumptions used to value the options granted for the three months ended March 31, 2022 and for the year ended December 31, 2021.

 

   

March 31, 2022

   

December 31,
2021

 

Risk–free interest rate

    1.63%       0.21%  

Expected volatility

    30.95%       34.90%  

Expected life, in years

    2.9       2.2  

Expected dividend yield

    3.62%       3.00%  

 

The following table summarizes our outstanding stock options for the three months ended March 31, 2022 and for the year ended December 31, 2021.

 

   

Number of

Shares

   

Weighted

Average

Exercise Price

   

Aggregate

Intrinsic

Value

 

Options outstanding at January 1, 2021

    866,956     $ 72.11     $  

Options granted

    55,706       70.80        

Options exercised

    (541,736

)

    71.39        

Options cancelled

    (6,000

)

    72.94        

Options outstanding at December 31, 2021

    374,926       72.95        

Options granted

    249,640       64.15        

Options cancelled

    (157,240

)

    76.99        

Options outstanding at March 31, 2022

    467,326       66.88     $ 2,085,879  
                         

Options exercisable at March 31, 2022

    172,686       69.60     $ 567,923  

 

 

Options

Outstanding

March 31, 2022

   

Exercise Prices

   

Weighted Average

Exercise Price

   

Weighted Average

Remaining

Contractual

Life in Years

 
332,620     61.90 - 68.84       63.96       4.1  
134,706     71.64 - 77.92       74.11       2.1  
467,326               66.88       3.5  

 

22

 
 

Note 15 Income Taxes

 

The Company's income tax provision as a percentage of our income before income taxes was 25.3% for the three months ended March 31, 2022 and 2021.

 

Typically, these percentages vary from the U.S. federal statutory income tax rate of 21% primarily due to state income taxes, excess tax benefits from stock-based compensation, benefits resulting from the lapsing of statute of limitations of items in our tax contingency reserve, and non-deductible expenses. For the three months ended March 31, 2022 and 2021, the accrual of state income tax was the only significant reconciling item.

 

Our quarterly income tax provision, and our estimate of our annual effective income tax rate, is subject to variation due to several factors, including volatility based on the amount of pre-tax income or loss.  

 

The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2018 (with certain state exceptions).

 

 

 

Note 16 Contingencies and Commitments

 

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 both for our owned and leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $101,413,000 and $98,048,000 at March 31, 2022 and December 31, 2021, respectively. The liability is included in accrued risk reserves in the interim condensed consolidated balance sheets and is subject to adjustment for actual claims incurred. It is possible that these claims plus unasserted claims could exceed our insurance coverages and our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

 

As a result of the terms of our insurance policies and our use of wholly owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability. We consider the professional services of independent actuaries to assist us in estimating our exposures for claims obligations (for both asserted and unasserted claims) related to deductibles and exposures in excess of coverage limits, and we maintain reserves for these obligations. Such estimates are based on many variables including historical and statistical information and other factors.

 

Workers Compensation

 

For workers’ compensation, we utilize a wholly–owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third–party customers. Policies are written for a duration of twelve months and cover only risks related to workers’ compensation losses. All customers are companies which operate in the senior care industry. Business is written on a direct basis. 

 

General and Professional Liability Insurance and Lawsuits

 

The senior care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly owned captive insurance company.

 

There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows. In addition, the long–term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters.

 

Qui Tam Litigation

 

United States of America, ex rel. Jennifer Cook and Sally Gaither v. Integrated Behavioral Health, Inc., NHC HealthCare/Moulton, LLC, et al., Case No. 2:20-CV-00877-AMM (N.D. Ala.)  This is a qui tam case originally filed under seal on June 22, 2020. The United States declined intervention on March 1, 2021. Thereafter, the Plaintiff filed an amended Complaint against Dr. Sanja Malhotra, Integrated Behavioral Health, Inc. and other entities that Dr. Malhotra is alleged to own or in which he has a financial interest.  The Complaint also named multiple skilled nursing facilities as Defendants, including NHC Healthcare/Moulton, LLC, an affiliate of National HealthCare Corporation. The Complaint alleges that nurse practitioners affiliated with Dr. Malhotra provided free services to the facilities in exchange for referrals to entities owned by or in which Dr. Malhotra had a financial interest in violation of the False Claims Act and Anti-Kickback Statute. NHC Healthcare/Moulton, LLC denies the allegations and is vigorously defending the claim. A motion to dismiss was filed on November 4, 2021.  On January 28, 2022, the district court stayed this matter and administratively terminated the motion to dismiss pending the U.S. Supreme Court's review of a petition for certiorari filed in an unrelated matter, but involving one of the legal arguments raised in the motion to dismiss.  We expect that the motion to dismiss will be renewed once the stay is lifted.  There is no expected timeline for the lifting of the stay.  

 

23

 

Governmental Regulations

 

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid and other federal healthcare programs. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which have provided substantial support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

 

 

 

Note 17  Subsequent Event

 

On May 3, 2022, we signed operations transfer agreements ("OTAs") for the seven skilled nursing facilities located in Massachusetts and New Hampshire.  After a period of up to 90 days after the signing of the OTAs, the operations of the seven facilities are expected to be transferred to a third-party skilled nursing operator.  We expect to transfer the operations during the third quarter of 2022.  

 

The seven skilled nursing facilities had net patient revenues of $17,801,000 and $15,377,000 for the three months ended March 31, 2022 and 2021, respectively.  The seven skilled nursing facilities had losses before income taxes of $635,000 and $2,769,000 for the three months ended March 31, 2022 and 2021, respectively.  For the year ended December 31, 2021, the seven skilled nursing facilities had net patient revenues of $67,161,000 and losses before income taxes of $3,741,000.

 

In conjunction with the OTAs, we have signed an acknowledgement agreement with NHI that will terminate our lease agreement with the seven skilled nursing facilities and amend our master lease agreement.  The lease termination agreement and amendment to the master lease are subject to the operations being transferred.   

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

ForwardLooking Statements

 

References throughout this document to the Company include National HealthCare Corporation and its wholly owned subsidiaries. In accordance with the Securities and Exchange Commissions “Plain English” guidelines, this Quarterly Report on Form 10–Q has been written in the first person. In this document, the words “we”, “our”, “ours” and “us” refer only to National HealthCare Corporation and its wholly–owned subsidiaries and not any other person.

 

This Quarterly Report on Form 10–Q and other information we provide from time to time, contains certain “forward–looking” statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations or cash flows, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, ability to control our patient care liability costs, ability to respond to changes in government regulations, ability to execute our three–year strategic plan, and similar statements including, without limitations, those containing words such as “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans”, and other similar expressions are forward–looking statements.

 

Forward–looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward–looking statements as a result of, but not limited to, the following factors:

 

national and local economic conditions, including their effect on the availability and cost of labor, utilities and materials;

 

 

the effect of government regulations and changes in regulations governing the healthcare industry, including our compliance with such regulations;

 

 

changes in Medicare and Medicaid payment levels and methodologies and the application of such methodologies by the government and its fiscal intermediaries;

 

 

liabilities and other claims asserted against us, including patient care liabilities, as well as the resolution of current litigation (see Note 16: Contingencies and Commitments);

 

 

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

 

 

the ability to attract and retain qualified personnel;

 

 

the availability and terms of capital to fund acquisitions and capital improvements;

 

 

the competitive environment in which we operate;

   

the ability to maintain and increase census levels; and

 

 

demographic changes.

 

 

See the notes to the quarterly financial statements, and “Item 1. Business” in our 2021 Annual Report on Form 10–K for a discussion of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. This may be found on our web site at www.nhccare.com. You should carefully consider these risks before making any investment in the Company. These risks and uncertainties are not the only ones facing us. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of the risks occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our shares of stock could decline, and you may lose all or part of your investment. Given these risks and uncertainties, we can give no assurances that these forward–looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them.

 

 

Overview

 

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. We operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,456 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital, 35 homecare agencies, and 29 hospice agencies. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.

 

 

Impact of COVID-19

 

In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. As a provider of healthcare services, we 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 around the middle of 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 in 2021.   Despite the COVID-19 cases significantly declining during 2021, our operating expenses remain elevated with incentive compensation being paid to our frontline partners, as well as increased costs of personal protective equipment (“PPE”), sanitizers and cleaning supplies, and COVID-19 testing of our patients and partners. Despite the continued disruption of COVID-19 to our operations, our capital and financial resources, including our overall liquidity, remain strong. Our liquidity provides us with significant flexibility to maintain the strength of our balance sheet in periods of uncertainty or stress.

 

At this time, we are not able to quantify the impact that the COVID-19 pandemic will have on our future financial results, but we expect the developments related to COVID-19 to adversely affect our financial performance in 2022.  The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic, the volume of acute and post-acute healthcare patients cared for across the broader health care systems, the timing and availability of effective medical treatments and vaccines, and the impact of government actions and administrative regulations on our industry and broader economy, including future government stimulus efforts.  We have received and may continue to receive payments and advances from the various federal and state initiatives. These legislative initiatives have been beneficial to partially mitigate the impact of the COVID-19 pandemic on our results of operations and financial position to date.  The federal and state governments may consider additional stimulus and relief efforts, but we are unable to predict whether any of the additional stimulus measures will be enacted or their impact.   

 

Legislation and Government Stimulus Due to COVID-19

 

The U.S. government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. The new laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective is the CARES Act. Through the CARES Act, as well as the PPPCHE, the federal government allocated $178 billion to the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.    

 

 

The Provider Relief Fund grants come with terms and condition certifications in which all providers are required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded $10,620,000 and $22,749,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 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. We received approximately $51,253,000 as part of this program. These funds are applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. Recoupment of the accelerated payments began in the second quarter of 2021. As of March 31, 2022, $5,003,000 of the accelerated payments remain and is reflected within contract liabilities in the interim condensed consolidated balance sheet.

 

The CARES Act and subsequent related legislation temporarily suspended Medicare sequestration beginning May 1, 2020 through March 31, 2022. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. Beginning April 1, 2022, the sequestration reductions will then be 1% from April 1, 2022 through June 30, 2022. The full 2% reduction is scheduled to go back into effect July 1, 2022. The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension, which the sequestration reduction for 2030 has been increased up to 3%.

 

The CARES Act also temporarily permitted employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would have been due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. At March 31, 2022, we have deferred $10,545,000 of the Company’s share of the social security taxes included in the current liabilities section of the consolidated balance sheet. 

 

 

Summary of Goals and Areas of Focus

 

Occupancy

 

A primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities. The overall census in owned and leased skilled nursing facilities for the three months ending March 31, 2022 was 82.7% compared to 76.8% for the same period a year ago. 

 

Due to the pandemic, as well as the increased availability of assisted living facilities and home and community-based services, the challenge of maintaining desirable patient census levels has been amplified. Management has undertaken a number of steps in order to best position our current and future health care facilities. This includes working internally to examine and improve systems to be most responsive to referral sources and payors. 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

 

CMS introduced the Five-Star Quality Rating System to help consumers, their families and caregivers compare skilled nursing facilities more easily. The Five-Star Quality Rating System gives each skilled nursing operation a rating ranging between one and five stars in various categories (five stars being the best). The Company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance.

 

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

 

   

NHC Ratings

   

Industry Ratings

 

Total number of skilled nursing facilities, end of period

    75          

Number of 4 and 5-star rated skilled nursing facilities

    58          

Percentage of 4 and 5-star rated skilled nursing facilities

    77%       44%  

Average rating for all skilled nursing facilities, end of period

    4.1       3.1  

 

 

Development and Growth

 

We are undertaking to expand our senior care operations while protecting our existing operations and markets. The following table lists our recent development activities.

 

Type of

Operation

   

Description

   

Size

   

Location

   

Placed in Service

Hospice

   

Acquisition

   

28 offices

   

Various

   

June 2021

Behavioral Health Hospital

   

New Facility

   

64 beds

   

Knoxville, TN

   

April 2022

Behavioral Health Hospital

   

New Facility

   

16 beds

   

St. Louis, MO

   

May 2022

 

Accrued Risk Reserves

 

Our accrued professional liability and workers’ compensation reserves totaled $101,413,000 at March 31, 2022 and are a primary area of management focus. We have set aside restricted cash and cash equivalents and marketable securities to fund our estimated professional liability and workers’ compensation liabilities.

 

As to exposure for professional liability claims, we have developed performance certification criteria to measure and 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. These programs for certification, which we regularly modify and improve, have produced measurable improvements in reducing these incidents. Our experience is that achieving goals in these patient care areas improves both patient and employee satisfaction.

 

 

Government Reimbursement Programs

 

Medicare Skilled Nursing Facilities

 

On July 29, 2021, CMS released its final rule outlining fiscal year 2022 Medicare payment rates and policy changes for skilled nursing facilities, which began October 1, 2021. The fiscal year 2022 rule provided for an approximate 1.2% increase, or $410 million, compared to 2021 levels. The net increase includes a 2.7% market-basket update that is offset by a 0.7% productivity adjustment and a 0.8% market-basket forecast error adjustment since the difference between the projected and actual market basket for FY2020 exceeded its threshold.

 

In April 2022, CMS released its proposed rule outlining fiscal year 2023 Medicare payment rates and policy changes for skilled nursing facilities, which will begin on October 1, 2022. The fiscal year 2023 proposed rule equates to a net decrease of 0.7%, or approximately $320 million, in Medicare Part A payments to SNFs in fiscal year 2023 compared to 2022 levels.  The proposed rule includes a 2.8% market basket rate increase, a 1.5% increase for forecast error adjustment, and a 0.4% decrease for multifactor productivity adjustment for a net update of 3.9%. But, CMS also proposes to offset the 3.9% increase with a downward adjustment to payment rates by 4.6%, or $1.7 billion, to achieve budget neutrality from the aggregate fiscal year 2020 Medicare payments under the new Patient Driven Payment Model.

 

For the first three months of 2022, our average Medicare per diem rate for skilled nursing facilities increased 1.2% as compared to the same period in 2021. 

 

Medicaid Skilled Nursing Facilities

 

Effective July 1, 2021 and for the fiscal year 2022, the state of Tennessee implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 2022 fiscal year will be approximately $3,500,000 annually, or $875,000 per quarter.

 

Effective July 1, 2021 and for the fiscal year 2022, the state of Missouri implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 2022 fiscal year will be approximately $2,000,000 annually, or $500,000 per quarter.

 

We have also received from many of the states in which we operate supplemental Medicaid payments to help mitigate the incremental costs resulting from the COVID-19 public health emergency. We have recorded $5,538,000 and $3,955,000 in net patient revenues for these supplemental Medicaid payments for the three months ended March 31, 2022 and 2021, respectively.

 

 

For the first three months of 2022, our average Medicaid per diem increased 4.8% compared to the same period in 2021.

 

We face challenges with respect to states’ Medicaid payments, because many currently do not cover the total costs incurred in providing care to those patients. States will continue to control Medicaid expenditures and also look for adequate funding sources, including provider assessments. There are several pieces of legislation that include provisions designed to reduce Medicaid spending. These provisions include, among others, provisions strengthening the Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long-term care coverage, which could, due to the timing of the penalty period, increase facilities’ exposure to uncompensated care. Other provisions could increase state funding for home and community-based services, potentially having an impact on funding for nursing facilities.

 

Medicare Homecare Programs

 

In November 2021, CMS released its final rule outlining fiscal year 2022 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 2022 will increase in aggregate by 3.2%, or $570 million. The increase reflects the effects of the home health payment update percentage of 2.6%, an estimated 0.7% increase that reflects the effects of the updated fixed-dollar loss ratio, and an estimated 0.1% decrease in payments due to the changes in the rural add-on percentages for 2022.

 

Medicare Hospice

 

In July 2021, CMS released its final rule outlining fiscal year 2022 Medicare payment rates. CMS issued a rate increase of 2.0%, or $480 million, effective October 1, 2021. The increase is the result of a 2.7% market basket increase reduced by a 0.7% productivity adjustment. The FY2022 hospice payment updates also include an update to the statutory aggregate cap amount, which limits the overall payments per patient that are made annually. The cap amount for FY2022 is $31,298.

 

 

Segment Reporting

 

The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our behavioral health hospital; 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. For additional information on these reportable segments see Note 2 – Summary of Significant Accounting Policies.   

 

The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.

 

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

 

   

Three Months Ended March 31, 2022

 
   

Inpatient
Services

   

Homecare

and Hospice