UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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NATIONAL HEALTHCARE CORPORATION
Interim Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues and grant income: | ||||||||||||||||
| Net patient revenues | $ | $ | $ | $ | ||||||||||||
| Other revenues | ||||||||||||||||
| Government stimulus income | ||||||||||||||||
| Net operating revenues and grant income | ||||||||||||||||
| Cost and expenses: | ||||||||||||||||
| Salaries, wages, and benefits | ||||||||||||||||
| Other operating | ||||||||||||||||
| Facility rent | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Interest | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Other income: | ||||||||||||||||
| Non–operating income | ||||||||||||||||
| Unrealized gains/(losses) on marketable equity securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Income/(loss) before income taxes | ( | ) | ||||||||||||||
| Income tax (provision)/benefit | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income/(loss) | ( | ) | ||||||||||||||
| Net loss attributable to noncontrolling interest | ||||||||||||||||
| Net income/(loss) attributable to National HealthCare Corporation | $ | $ | ( | ) | $ | $ | ||||||||||
| Earnings/(loss) per share attributable to National HealthCare Corporation stockholders: | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | $ | ||||||||||
| Diluted | $ | $ | ( | ) | $ | $ | ||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Dividends declared per common share | $ | $ | $ | $ | ||||||||||||
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 September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net income/(loss) | $ | $ | ( | ) | $ | $ | ||||||||||
| Other comprehensive loss: | ||||||||||||||||
| Unrealized losses on investments in marketable debt securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Reclassification adjustment for realized (gains)/losses on sales of marketable debt securities | ( | ) | ||||||||||||||
| Income tax benefit related to items of other comprehensive income | ||||||||||||||||
| Other comprehensive loss, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to noncontrolling interest | ||||||||||||||||
| Comprehensive income/(loss) attributable to National HealthCare Corporation | $ | $ | ( | ) | $ | $ | ||||||||||
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)
| September 30, 2023 | December 31, 2022 | |||||||
| unaudited | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash and cash equivalents, current portion | ||||||||
| Marketable equity securities | ||||||||
| Marketable debt securities | ||||||||
| Restricted marketable equity securities | ||||||||
| Restricted marketable debt securities, current portion | ||||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total current assets | ||||||||
| Property and Equipment: | ||||||||
| Property and equipment, at cost | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Net property and equipment | ||||||||
| Other Assets: | ||||||||
| Restricted cash and cash equivalents, less current portion | ||||||||
| Restricted marketable debt securities, less current portion | ||||||||
| Deposits and other assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets | ||||||||
| Investments in unconsolidated companies | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
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)
| September 30, 2023 | December 31, 2022 | |||||||
| unaudited | ||||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Trade accounts payable | $ | $ | ||||||
| Finance lease obligations, current portion | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Accrued payroll | ||||||||
| Amounts due to third party payors | ||||||||
| Accrued risk reserves, current portion | ||||||||
| Other current liabilities | ||||||||
| Dividends payable | ||||||||
| Total current liabilities | ||||||||
| Finance lease obligations, less current portion | ||||||||
| Operating lease liabilities, less current portion | ||||||||
| Accrued risk reserves, less current portion | ||||||||
| Refundable entrance fees | ||||||||
| Deferred income taxes | ||||||||
| Other noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Equity: | ||||||||
| Common stock, $ par value; shares authorized; and shares, respectively, issued and outstanding | ||||||||
| Capital in excess of par value | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total National HealthCare Corporation stockholders’ equity | ||||||||
| Noncontrolling interest | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
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)
| Nine Months Ended September 30 | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Equity in earnings of unconsolidated investments | ( | ) | ( | ) | ||||
| Distributions from unconsolidated investments | ||||||||
| Unrealized (gains)/losses on marketable equity securities | ( | ) | ||||||
| Realized losses on sale of marketable securities | ||||||||
| Recovery of notes receivable | ( | ) | ||||||
| Deferred income taxes | ( | ) | ||||||
| Stock–based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Operating lease obligations | ( | ) | ||||||
| Trade accounts payable | ( | ) | ( | ) | ||||
| Accrued payroll | ( | ) | ( | ) | ||||
| Amounts due to third party payors | ( | ) | ( | ) | ||||
| Accrued risk reserves | ||||||||
| Provider relief funds | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Other current liabilities | ||||||||
| Other noncurrent liabilities | ( | ) | ||||||
| Net cash provided by/(used in) operating activities | ( | ) | ||||||
| Cash Flows From Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of skilled nursing facility | ( | ) | ||||||
| Proceeds from the sale of property and equipment | ||||||||
| Investments in notes receivable | ( | ) | ( | ) | ||||
| Collections of notes receivable |
| |||||||
| Purchases of marketable securities | ( | ) | ( | ) | ||||
| Proceeds from sale of marketable securities | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Principal payments under finance lease obligations | ( | ) | ( | ) | ||||
| Dividends paid to common stockholders | ( | ) | ( | ) | ||||
| Noncontrolling interest contributions | ||||||||
| Issuance of common shares | ||||||||
| Repurchase of common shares | ( | ) | ( | ) | ||||
| Entrance fee refunds | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net Increase/(Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents | ( | ) | ||||||
| Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period | ||||||||
| Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period | $ | $ | ||||||
| Balance Sheet Classifications: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash and cash equivalents | ||||||||
| Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents | $ | $ | ||||||
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)
For the nine months ended September 30, 2023:
| Common Stock | Capital in Excess of | Retained | Accumulated Other Comprehensive | Non- controlling | Total Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Par Value | Earnings | Loss | Interest | Equity | ||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net income/(loss) | – | ( | ) | |||||||||||||||||||||||||
| Other comprehensive income | – | |||||||||||||||||||||||||||
| Stock–based compensation | – | |||||||||||||||||||||||||||
| Shares sold – options exercised | ||||||||||||||||||||||||||||
| Repurchase of common shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Dividends declared to common stockholders ($ per share) | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net income/(loss) | – | ( | ) | |||||||||||||||||||||||||
| Other comprehensive loss | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock–based compensation | – | |||||||||||||||||||||||||||
| Shares sold – options exercised | ||||||||||||||||||||||||||||
| Dividends declared to common stockholders ($ per share) | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2023 | ( | ) | ||||||||||||||||||||||||||
| Net income/(loss) | – | ( | ) | |||||||||||||||||||||||||
| Other comprehensive loss | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock–based compensation | – | |||||||||||||||||||||||||||
| Shares sold – options exercised | ||||||||||||||||||||||||||||
| Dividends declared to common stockholders ($ per share) | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at September 30, 2023 | ( | ) | ||||||||||||||||||||||||||
For the nine months ended September 30, 2022:
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Net income | – | |||||||||||||||||||||||||||
| Other comprehensive loss | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock–based compensation | – | |||||||||||||||||||||||||||
| Shares sold – options exercised | ||||||||||||||||||||||||||||
| Repurchase of common shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Dividends declared to common stockholders ($ per share) | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net income/(loss) | – | ( | ) | |||||||||||||||||||||||||
| Other comprehensive loss | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock–based compensation | – | |||||||||||||||||||||||||||
| Shares sold – options exercised | ||||||||||||||||||||||||||||
| Dividends declared to common stockholders ($ per share) | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net income loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Other comprehensive loss | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock–based compensation | – | |||||||||||||||||||||||||||
| Shares sold – options exercised | ||||||||||||||||||||||||||||
| Repurchase of common shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividends declared to common stockholders ($ per share) | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ) | ||||||||||||||||||||||||||
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
September 30, 2023
(unaudited)
Note 1 – Description of Business
National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of September 30, 2023, we operate or manage, through certain affiliates,
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, 2022 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, 2022 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, 2022 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.
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, hospice services, and behavioral health 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.
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 explicit price concessions provided to third party payors. Explicit price concessions 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 $
Other Revenues
Other revenues include revenues from the provision of insurance services to other healthcare providers, management and accounting services to other healthcare 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
We 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
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 and incentive compensation, which were $
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 to 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.
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 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,
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 the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. 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 the 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 fair value of the intangible asset is below its carrying amount.
Accrued Risk Reserves
We are self–insured for risks related to workers' compensation and general and professional liability insurance. We have two wholly–owned limited purpose insurance companies that insure these risks. 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 coverage includes 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.
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
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 in our consolidated balance sheets.
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 September 30, 2023, and December 31, 2022, we have recorded a future service obligation liability in the amount of $
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.
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 was 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.
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 $
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 $
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 behavioral health hospitals, and (2) homecare and hospice services (in thousands).
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net patient revenues: | ||||||||||||||||
| Inpatient services | $ | $ | $ | $ | ||||||||||||
| Homecare and hospice | ||||||||||||||||
| Total net patient revenue | $ | $ | $ | $ | ||||||||||||
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 September 30 | Nine Months Ended September 30 | |||||||||||||||
| Source | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Medicare | ||||||||||||||||
| Managed Care | ||||||||||||||||
| Medicaid | ||||||||||||||||
| Private Pay and Other | ||||||||||||||||
| Total | ||||||||||||||||
Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days. 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.
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.
Third Party Payors
Laws and regulations governing 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 $
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 September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Rental income | $ | $ | $ | $ | ||||||||||||
| Management and accounting services fees | ||||||||||||||||
| Insurance services | ||||||||||||||||
| Other | ( | ) | ||||||||||||||
| Total other revenues | $ | $ | $ | $ | ||||||||||||
Rental Income
The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators. Additionally, we sublease
Management Fees from National Health Corporation
We manage
Insurance Services
For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended September 30, 2023 and 2022 were $
For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended September 30, 2023 and 2022 were $
Note 6 – Non–Operating 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 September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Dividends and net realized gains and losses on sales of securities | $ | $ | $ | $ | ||||||||||||
| Interest income | ||||||||||||||||
| Equity in earnings of unconsolidated investments | ||||||||||||||||
| Total non-operating income | $ | $ | $ | $ | ||||||||||||
Note 7 – Business Segments
The Company has
The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.
The following table sets forth the Company’s unaudited interim condensed consolidated statements of operations by business segment (in thousands):
| Three Months Ended September 30, 2023 | ||||||||||||||||
| Inpatient | Homecare and Hospice | All Other | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| Net patient revenues | $ | $ | $ | $ | ||||||||||||
| Other revenues | ||||||||||||||||
| Net operating revenues | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||
| Salaries, wages, and benefits | ||||||||||||||||
| Other operating | ||||||||||||||||
| Rent | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Interest | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Income/(loss) from operations | ( | ) | ||||||||||||||
| Non-operating income | ||||||||||||||||
| Unrealized losses on marketable equity securities | ( | ) | ( | ) | ||||||||||||
| Income/(loss) before income taxes | $ | $ | $ | ( | ) | $ | ||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||
| Inpatient | Homecare and Hospice | All Other | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| Net patient revenues | $ | $ | $ | $ | ||||||||||||
| Other revenues | ( | ) | ||||||||||||||
| Net operating revenues | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||
| Salaries, wages, and benefits | ||||||||||||||||
| Other operating | ||||||||||||||||
| Rent | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Interest | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Income/(loss) from operations | ( | ) | ( | ) | ||||||||||||
| Non-operating income | ||||||||||||||||
| Unrealized losses on marketable equity securities | ( | ) | ( | ) | ||||||||||||
| Income/(loss) before income taxes | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Nine Months Ended September 30, 2023 | ||||||||||||||||
| Inpatient | Homecare and Hospice | All Other | Total | |||||||||||||
| Revenues: | ||||||||||||||||
| Net patient revenues | $ | $ | $ | $ | ||||||||||||
| Other revenues | ||||||||||||||||
| Net operating revenues | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||
| Salaries, wages, and benefits | ||||||||||||||||
| Other operating | ||||||||||||||||
| Rent | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Interest | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Income/(loss) from operations | ( | ) | ||||||||||||||
| Non-operating income | ||||||||||||||||
| Unrealized gains on marketable equity securities | ||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | ||||||||||||
| Nine Months Ended September, 2022 | ||||||||||||||||
| Inpatient | Homecare and Hospice | All Other | Total | |||||||||||||
| Revenues and grant income: | ||||||||||||||||
| Net patient revenues | $ | $ | $ | $ | ||||||||||||
| Other revenues | ||||||||||||||||
| Government stimulus income | ||||||||||||||||
| Net operating revenues and grant income | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||
| Salaries, wages, and benefits | ||||||||||||||||
| Other operating | ||||||||||||||||
| Rent | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Interest | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Income/(loss) from operations | ( | ) | ||||||||||||||
| Non-operating income | ||||||||||||||||
| Unrealized losses on marketable equity securities | ( | ) | ( | ) | ||||||||||||
| Income/(loss) before income taxes | $ | $ | $ | ( | ) | $ | ||||||||||
Note 8 – Long-Term Leases
Operating Leases
At September 30, 2023, we lease from NHI the real property of
Finance Leases
At September 30, 2023, 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 -year lease with
Minimum Lease Payments
The following table summarizes the maturity of our finance and operating lease liabilities as of September 30, 2023 (in thousands):
| Finance Leases | Operating Leases | |||||||
| 2024 | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total minimum lease payments | ||||||||
| Less: amounts representing interest | ( | ) | ( | ) | ||||
| Present value of future minimum lease payments | ||||||||