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1、 Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549 FORM 10-K(Mark One)XANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES AND EXCHANGE ACT OF 1934For the fiscal year ended December 31,2023ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURI
2、TIES EXCHANGE ACT OF 1934For the transition period from to Commission File No.001-13489(Exact name of registrant as specified in its Corporate Charter)Delaware52-2057472(State of Incorporation)(I.R.S.Employer Identification No.)100 E.Vine StreetMurfreesboro,Tennessee 37130(Address of principal execu
3、tive offices)Telephone Number:6158902020 Securities registered pursuant to Section 12(b)of the Act.Title of Each ClassTradingName of Each Exchange on which Registered Symbol(s)Shares of Common StockNHCNYSE-American Securities registered pursuant to Section 12(g)of the Act:None Indicate by check mark
4、 if the registrant is a wellknown seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No X Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes No X Indicate by check mark whether the registrant(1)has filed all re
5、ports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12months(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 X No Indicate by check m
6、ark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation ST(232.405 ofthis chapter)during the preceding 12 months(or for such period that the registrant was required to submit such files).Yes X No Indicate by chec
7、k mark whether the registrant is a large accelerated filer,an accelerated filer,a nonaccelerated filer,a 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
8、the Exchange Act.Largeaccelerated filer X Accelerated filer Nonaccelerated filer Smaller reporting company Emerging growth company If an emerging growth company,indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financi
9、alaccounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financialreporting under Section 404(b)of the Sarbanes-Oxle
10、y Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issued its audit report.X If securities are registered pursuant to Section 12(b)of the Act,indicate by check mark whether the financial statements of the registrant included in the filing reflect the correctionof an erro
11、r to previously issued financial statements.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of theregistrants executive officers during the relevant recovery period pursuant to(240.10D-1(
12、b).Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b2 of the Exchange Act).Yes No X The aggregate market value of Common Stock held by nonaffiliates on June 30,2023(based on the closing price of such shares on the NYSE American)was approximately$546.0 million.Fo
13、r purposes of the foregoing calculation only,all directors,named executive officers and persons known to the Registrant to be holders of 5%or more of theRegistrants Common Stock have been deemed affiliates of the Registrant.The number of shares of Common Stock outstanding as of February 14,2024 was
14、15,349,989.Documents Incorporated by ReferenceThe following documents are incorporated by reference into Part III,Items 10,11,12,13 and 14 of this Form 10K:The Registrants definitive proxy statement for its 2024 shareholders meeting.Table of Contents PART 1 ITEM 1.Business2 ITEM 1A.Risk Factors11 IT
15、EM 1B.Unresolved Staff Comments21 ITEM 1C.Cybersecurity21 ITEM 2.Properties22 ITEM 3.Legal Proceedings26 ITEM 4.Mine Safety Disclosures26 PART II ITEM 5.Market for Registrants Common Equity,Related Stockholder Matters,and Issuer Purchases of Equity Securities27 ITEM 6.Reserved29 ITEM 7.Managements D
16、iscussion and Analysis of Financial Condition and Results of Operations29 ITEM 7A.Quantitative and Qualitative Disclosure About Market Risk40 ITEM 8.Financial Statements and Supplementary Data41 ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure73 ITEM 9A.Con
17、trols and Procedures73 ITEM 9B.Other Information75 ITEM 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections75 PART III ITEM 10.Directors,Executive Officers and Corporate Governance75 ITEM 11.Executive Compensation75 ITEM 12.Security Ownership of Certain Beneficial Owners and Manag
18、ement and Related Stockholder Matters75 ITEM 13.Certain Relationships and Related Transactions and Director Independence75 ITEM 14.Principal Accountant Fees and Services75 PART IV ITEM 15.Exhibits and Financial Statement Schedules76 ITEM 16.Form 10-K Summary79 Exhibit Index77 Signatures80 Table of C
19、ontents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Statements in this annual filing that are not historical facts are forward-looking statements.NHC cautions investors that any forward-looking statements made involverisks and uncertainties and are not guarantees of future performance.Inves
20、tors should also refer to the risks identified in Part 1.Item 1A.Risk Factors for a discussion of variousrisk factors of the Company and that are inherent in the health care industry.Given these risks and uncertainties,we can give no assurance that these forward-looking statementswill,in fact,transp
21、ire and,therefore,caution investors not to place undue reliance on them.The risks included here are not exhaustive.All forward-looking statements representNHCs best judgment as of the date of this filing.PART 1 ITEM 1.BUSINESS National HealthCare Corporation,which we also refer to as NHC or the Comp
22、any,began business in 1971.Our principal business is the operation of skilled nursingfacilities,assisted living facilities,independent living facilities,homecare and hospice agencies,and behavioral health hospitals.Our business activities include providing subacute and postacute skilled nursing care
23、,intermediate nursing care,rehabilitative care,memory and Alzheimers care,senior living services,home health care services,hospiceservices,and behavioral health services.In addition,we provide management services,accounting and financial services,as well as insurance services to third party operator
24、s ofhealth care facilities.We also own the real estate of 10 healthcare properties and lease these properties to third party operators.We operate in 8 states and our operations areprimarily located in the Southeastern and Midwestern parts of the United States.Description of the Business The followin
25、g table summarizes our operations by ownership status as of December 31,2023:Owned Leased Managed Total Skilled Nursing Facilities Number of facilities 28 32 8 68 Percentage of total 41.2%47.0%11.8%100.0%Licensed beds 3,526 4,227 979 8,732 Percentage of total 40.4%48.4%11.2%100.0%Assisted Living Fac
26、ilities Number of facilities 17 7 2 26 Percentage of total 65.4%26.9%7.7%100.0%Units 1,293 174 34 1,501 Percentage of total 86.1%11.6%2.3%100.0%Independent Living Facilities Number of facilities 1 3 1 5 Percentage of total 20.0%60.0%20.0%100.0%Retirement apartments 93 245 137 475 Percentage of total
27、 19.6%51.6%28.8%100.0%Behavioral Health Hospitals Number of facilities 3 3 Percentage of total 100.0%100.0%Licensed beds 96 96 Percentage of total 100.0%100.0%Homecare Agencies 35 35 Hospice Agencies 30 30 2Table of Contents Net Patient Revenues.The services we provide include a comprehensive range
28、of health care services.In fiscal 2023,95.3%of our net operating revenues were derivedfrom such health care services.Highlights of health care services activities during 2023 were as follows:Skilled Nursing Facilities.The most significant portion of our business and the base for our other health car
29、e services is the operation of our skilled nursingfacilities(SNFs”).In our facilities,experienced medical professionals provide medical services prescribed by physicians.Registered nurses,licensed practicalnurses,and certified nursing assistants provide comprehensive,individualized nursing care 24 h
30、ours a day.In addition,our facilities provide licensed therapyservices,quality nutrition services,social services,activities,and housekeeping and laundry services.Revenues from the 60 facilities we own or lease arereported as net patient revenues in our financial statements.Management fee income is
31、recorded as other revenues from the eight facilities that we manage.Wegenerally charge 6%of facility net operating revenues for our management services.The following table shows the occupancy percentages for our owned and leased skilled nursing facilities.We define occupancy percentage as the ratio
32、of actualpatient days during any measurement period to the number of operational beds in a facility.The number of beds that are operational may be lessthan the licensed bed capacity.The reduction of operational beds compared to licensed beds occurs for a variety of reasons,some of which include conf
33、ormingto government requirements,improving operational efficiencies,or enhancing the patient experience.We believe reporting occupancy based on operationalbeds is consistent with industry practice and provides a more meaningful measure of performance.Year Ended December 31,2023 2022 2021 Overall cen
34、sus 87.9%83.8%80.6%Rehabilitative Services.Our licensed therapists provide physical,speech,respiratory and occupational therapy for patients recovering from strokes,heartattacks,orthopedic conditions,neurological illnesses,or other illnesses,injuries,or disabilities.We maintained a rehabilitation st
35、aff of over 1,200 highly trained,professional therapists in 2023.Most of our rehabilitative services are for patients in our owned,leased and managed skilled nursing facilities.However,we alsoprovide services to 41 additional health care providers.Our rates for these services are competitive with ot
36、her market rates.Medical Specialty Units.All our skilled nursing facilities participate in the Medicare program,and we have expanded our range of offerings by the creation offacilityspecific medical specialty units such as our memory care units and sub-acute nursing units.Our trained staff provides
37、care for Alzheimers patients inearly,middle and advanced stages of the disease.We provide specialized care and programs for persons with Alzheimers or related disorders in dedicated unitswithin many of our skilled nursing facilities.Our specialized rehabilitation programs are designed to shorten or
38、eliminate hospital stays and help to reduce thecost of quality health care.We develop individualized patient care plans to target appropriate medical and functional planning objectives with a primary goalwhere feasible for a return to home or a similar environment.Assisted Living Facilities.Our assi
39、sted living facilities provide personal care services and assistance with general activities of daily living such as dressing,bathing,meal preparation and medication management.We perform resident assessments to determine what services are desired or required and our qualifiedstaff encourages reside
40、nts to participate in a range of activities.In 2023,the rate of occupancy was 78.5%compared to 71.6%in 2022.Certificates of Need(CONs”)are not required to build these projects in most states,and we believe overbuilding has occurred in some of our markets.Independent Living Facilities.Our independent
41、 living facilities offer specially designed residential units for the active and ambulatory elderly and providevarious ancillary services for our residents,including restaurants,activity rooms and social areas.Charges for services are paid from private sources withoutassistance from governmental pro
42、grams.Independent living facilities may be licensed and regulated in some states,but do not require the issuance of a CONsuch as is required for skilled nursing facilities.We have,in several cases,developed independent living facilities adjacent to our nursing facilities.These unitsare rented by the
43、 month;thus,these facilities offer an expansion of our continuum of care.We believe these independent living units offer a positive marketingaspect to all our senior care offerings and services.In 2023 and 2022,the rate of occupancy was 89.0%.We have one independent living facility which is a contin
44、uing care community,where the resident pays a substantial entrance fee and a monthly maintenancefee.The resident then receives a full range of services,including skilled nursing and home health,without additional charge.Behavioral Health Hospitals.Our comprehensive continuum of care includes behavio
45、ral health services to both adults and geriatric patients with psychiatric,emotional,and addictive disorders.Currently,we operate three behavioral hospitals for adult and geriatric patients who require inpatient hospitalization due tomental disorders,including cognitive illnesses.We also offer inten
46、sive outpatient programs with individualized treatment plans based on the patients clinicalneeds.3Table of Contents Homecare Agencies.Our home health agencies(homecares”)assist those who wish to stay at home or in assisted living residences but still require somedegree of medical care or assistance
47、with daily activities.Registered and licensed practical nurses and therapy professionals provide skilled services such asinfusion therapy,wound care and physical,occupational and speech therapies.Home health aides may assist with daily activities such as assistance withwalking and getting in and out
48、 of bed,personal hygiene,medication assistance,light housekeeping and maintaining a safe environment.Under the Medicarereimbursement payment system,we receive a prospectively determined amount per patient per 30-day period of care.Under our managed care contracts,we mayreceive a period of care payme
49、nt or be paid by a per-visit payment model.In 2023,we served an average census of 3,321 patients and provided 309,929 visits.Hospice Agencies.We provide hospice care through Caris Healthcare,L.P.(Caris”),a wholly owned subsidiary of NHC.Caris specializes in providing hospiceand palliative care to ov
50、er 1,268 patients per day in 30 locations in Georgia,Missouri,South Carolina,Tennessee,and Virginia.Under the Medicarereimbursement payment system,Medicare pays a daily rate to cover the costs for providing services included in the patient care plan.Medicare makes dailypayments based on 1 of 4 level
51、s of hospice care.All hospice care and services offered to patients and their families must follow an individualized written plan ofcare that meets the patients needs.Pharmacy Operations.At December 31,2023,we operated four regional pharmacy locations(two locations in Tennessee and one location each
52、 in South Carolinaand Missouri).These pharmacies primarily service our patients that are in an inpatient setting using a central location to deliver pharmaceutical supplies.Ourregional pharmacies bill Medicare Part D Prescription Drug Plans(PDPs)electronically and directly for inpatients who have se
53、lected a PDP.Institutional Special Needs Plan(I-SNP”).Our I-SNP,which is called NHC Advantage,is a managed care insurance company that restricts enrollment toMedicare Advantage eligible individuals who,for 90 days or longer,have had or are expected to need the level of services provided in a skilled
54、 nursing facility.We believe the I-SNP benefits our patients by providing nurse practitioners and care-coordination teams that continue to enhance the patient-centeredexperience and our quality of patient care.The I-SNP receives a per member,per month premium from Medicare which covers the members s
55、ame health carebenefits as original Medicare,as well as additional benefits including preventive screenings and routine vision coverage.At December 31,2023,the I-SNPoperated in the states of Tennessee,Missouri,and South Carolina with approximately 1,200 members enrolled in the plan.Other Revenues.We
56、 generate revenues from management,accounting and financial services to third party operators of healthcare facilities,from insurance services toour managed healthcare facilities,and from rental income.In fiscal 2023,4.7%of our net operating revenues were derived from such sources.The significant so
57、urces of our otherrevenues are described as follows:Management,Accounting and Financial Services.We provide management services to skilled nursing facilities,assisted living facilities and independent livingfacilities operated by third party operators.We typically charge 6%of the managed centers net
58、 operating revenues as a fee for these services.Additionally,weprovide accounting and financial services to other healthcare operators.As of December 31,2023,we perform management services for eleven healthcarefacilities and accounting and financial services for 16 healthcare facilities.Insurance Se
59、rvices.NHC owns a Tennessee domiciled insurance company that provides workers compensation coverage to substantially all of NHCs owned,leased and managed healthcare facilities.A second wholly owned insurance subsidiary is licensed in the Cayman Islands and provides general and professionalliability
60、coverage in substantially all of NHCs owned,leased and managed healthcare facilities.Rental Income.The healthcare properties currently owned and leased to third party operators include nine skilled nursing facilities and one assisted livingcommunities.Government Stimulus Income.We received governmen
61、t stimulus funds as part of the Coronavirus Aid,Relief,and Economic Security Act(the CARES ACT).TheCARES Act provided$2.2 trillion of economy-wide financial stimulus in the form of financial aid to individuals,businesses,nonprofits,states and municipalities.The CARES Actappropriated$178 billion to t
62、he Public Health and Social Services Emergency Fund,which is referred to as the Provider Relief Fund(PRF).The Company recorded$0,$11,457,000and$63,360,000 of government stimulus income from the PRF for the years ended December 31,2023,2022,and 2021,respectively.NonOperating Income.We generate nonope
63、rating income from equity in earnings of unconsolidated investments,dividends and realized gains and losses onmarketable securities,interest income,and other miscellaneous nonoperating income.4Table of Contents Quality of Patient Care CMS introduced the Five-Star Quality Rating System to help consum
64、ers,their families and caregivers compare skilled nursing facilities more easily.The Five-Star QualityRating 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 strivedfor patient-centered car
65、e and quality outcomes as precursors to outstanding financial performance.In July 2022,CMS launched its enhanced Five-Star Quality Rating System which integrates weekend staffing rates for nurses and information on annual turnover amongnurses and administrators.The tables below summarize NHCs overal
66、l performance in these Five-Star ratings versus the skilled nursing industry as of December 31,2023:NHC Ratings IndustryRatings Total number of skilled nursing facilities,end of period 68 Number of 4 and 5-star rated skilled nursing facilities 40 Percentage of 4 and 5-star rated skilled nursing faci
67、lities 59%36%Average rating for all skilled nursing facilities,end of period 3.6 2.9 Development and Growth We are undertaking to expand our postacute and senior health care operations while protecting our existing operations and markets.The following table lists our recentconstruction and purchase
68、activities.Type of Operation Description Size Location Placed in ServiceHospice Acquisition 28 agencies Various June 2021Homecare New Agency 1 agency Anderson,SC January 2022Hospice New Agency 1 agency Tullahoma,TN March 2022Behavioral Health Hospital New Facility 64 beds Knoxville,TN April 2022Beha
69、vioral Health Hospital New Facility 16 beds St.Louis,MO June 2022Hospice New Agency 1 agency Cedar Bluff,VA March 2023Skilled Nursing Acquisition 66 beds Nashville,TN May 2023Homecare New Agency 1 agency Tallahassee,FL May 2023Assisted Living Facility New Operations 135 units Vero Beach,FL July 2023
70、Assisted Living Facility New Operations 95 units Merritt Island,FL July 2023Assisted Living Facility New Operations 100 units Stuart,FL July 2023 Business Segments The Company has two reportable operating segments:(1)inpatient services,which includes the operation of skilled nursing facilities,assis
71、ted and independent livingfacilities,and behavioral health hospitals 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 6 in
72、 the notes to the consolidated financial statements for furtherdisclosure of the Companys operating segments.Customers and Sources of Revenues No individual customer,or related group of customers,accounts for a significant portion of our revenues.We do not expect the loss of a single customer or gro
73、up ofrelated customers would have a material adverse effect.5Table of Contents 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 periodsindicated:Year Ended December 31,Source 2023 2022 2
74、021 Medicare 34%37%36%Managed Care 10%10%11%Medicaid 30%28%29%Private Pay and Other 26%25%24%Total 100%100%100%We attempt to attract an increased percentage of Medicare and private pay patients by providing rehabilitative and other postacute care services.These services aredesigned to speed the pati
75、ents recovery and allow the patient to return home as soon as it is practical.Medicare is a health insurance program for the aged and certain other chronically disabled individuals operated by the federal government.Medicare covers skillednursing services for beneficiaries who require nursing care a
76、nd/or rehabilitation services following a discharge from an acute care hospital.For each eligible day a Medicarebeneficiary 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.Thepayment cov
77、ers 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 ofcapitalrelated costs to deliver those services.Medicaid is a medical assistance program for the indigent,operated by individual states wi
78、th the financial participation of the federal government.The states in which weoperate primarily use a costbased reimbursement system.Under costbased reimbursement systems,the skilled nursing facility is reimbursed for the reasonable direct andindirect allowable costs it incurred in a base year in p
79、roviding routine resident care services as defined by the program.Seniors who enter skilled nursing facilities as private paypatients can become eligible for Medicaid once they have substantially depleted their assets.Medicaid is generally the largest source of funding for most skilled nursing facil
80、ities.Private pay,managed care,and other payment sources include commercial insurance,individual patient funds,managed care plans and the Veterans Administration.Although payment rates vary among these sources,market forces and costs largely determine these rates.Private paying patients,private insu
81、rance carriers and the VeteransAdministration generally pay based on the centers charges or specifically negotiated contracts.We contract with managed care organizations(MCOs)and insurance carriers for the provision of healthcare services by our owned,leased and managed healthcarefacilities.Governme
82、nt Regulation General Health care is an area of extensive regulatory oversight and frequent regulatory change.The federal government and the states in which we operate regulate variousaspects of our business.These regulatory bodies,among other things,require us annually to license our skilled nursin
83、g facilities and other health care businesses.To operateskilled nursing facilities and provide health care services we must comply with federal,state and local laws relating to the delivery and adequacy of medical care,distribution ofpharmaceuticals,equipment,personnel,operating policies,fire preven
84、tion,ratesetting,building codes and environmental protection.Changes in the laws or new interpretationsof existing laws as applied to the skilled nursing facilities,home health and hospice,or other components of our health care businesses,may have a significant impact on ouroperations.Governmental a
85、nd other authorities periodically inspect our healthcare facilities and home health and hospice agencies to assure that we continue to comply with theirvarious standards.We must pass these inspections to continue our licensing under state law,to obtain certification under the Medicare and Medicaid p
86、rograms,and to continueour participation in the Veterans Administration program.We can only participate in other thirdparty programs if our facilities pass these inspections.From time to time,we,like others in the health care industry,may receive notices from federal and state regulatory agencies al
87、leging that we failed to comply withapplicable standards.These notices may require us to take corrective action and may impose civil money penalties and/or other operating restrictions.If our healthcareoperations fail to comply with these directives or otherwise fail to comply substantially with lic
88、ensure and certification laws,rules and regulations,we could lose our certification asa Medicare and Medicaid provider and/or lose our licenses.Local and state health and social service agencies and other regulatory authorities specific to their location regulate,to varying degrees,our assisted livi
89、ng facilities.Although regulations and licensing requirements vary significantly from state to state,they typically address,among other things,personnel education,training and records;facility services,including administration of medication,assistance with supervision of medication management and li
90、mited nursing services;physical plant specifications;furnishing of resident units;food and housekeeping services;emergency evacuation plans;and resident rights and responsibilities.If assisted living facilities fail to comply withlicensing requirements,these facilities could lose their licenses.Most
91、 states also subject assisted living facilities to state or local building codes,fire codes and food servicelicensure or certification requirements.In addition,the manner and extent to which the assisted living industry is regulated at federal and state levels are evolving.6Table of Contents In all
92、states in which we operate,before a skilled nursing facility can make a capital expenditure exceeding certain specified amounts or construct any new skilled healthcare beds,approval of the state health care regulatory agency or agencies must be obtained,and a Certificate of Need issued.The appropria
93、te state health planning agency mustreview the Certificate of Need according to state specific guidelines before a Certificate of Need can be issued.A Certificate of Need is generally issued for a specific maximumamount of expenditure and the project must be completed within a specific time period.T
94、here is no advance assurance that we will be able to obtain a Certificate of Need in anyinstance.In some states,approval is also necessary in order to purchase existing health care beds,although the purchaser is normally permitted to avoid a full-scale Certificate ofNeed application procedure by giv
95、ing advance written notice of the acquisition and giving written assurance to the state regulatory agency that the change of ownership will notresult in a change in the number of beds,services offered and,in some cases,reimbursement rates at the facility.While there are currently no significant legi
96、slative proposals to eliminate Certificates of Need pertaining to skilled nursing care in the states in which we do business,deregulation in the Certificate of Need area would likely result in increased competition and could adversely affect occupancy rates and the supply of licensed and certifiedpe
97、rsonnel.A significant goal of the federal health care system is to transform the delivery of health care by holding providers accountable for the cost and quality of careprovided.Medicare and many commercial third-party payors are implementing Accountable Care Organization(ACO)models in which groups
98、 of providers share in the benefitand risk of providing care to an assigned group of individuals.Other reimbursement methodology reforms in which we are participating or expect to participate in include valuebased purchasing,in which a portion of provider reimbursement is redistributed based on rela
99、tive performance on designated economic,clinical quality,and patient satisfactionmetrics.Also,CMS is implementing programs to bundle acute care and postacute care reimbursement to hold providers accountable for costs across a broader continuum of care.These reimbursement methodologies and similar pr
100、ograms are likely to continue and expand,both in public and commercial health plans.Providers who respond successfully tothese trends and can deliver quality care at lower costs are likely to benefit financially.Patient Confidentiality We are also subject to laws and regulations enacted to protect t
101、he confidentiality of patient health information.The U.S.Department of Health and Human Services(HHS)has issued rules that govern our use and disclosure of protected health information.We have established policies and procedures to comply with HIPAA privacy andsecurity requirements.We maintain a com
102、pany-wide HIPAA compliance plan,that we believe complies with the HIPAA privacy and security regulations.The HIPAA privacy andsecurity regulations have and will continue to impose significant costs to the Company in order to comply with these standards.Our operations are also subject to any federal
103、orstate privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA.These laws vary and could impose additional penalties for privacy andsecurity breaches.Medicare and Medicaid Participation All skilled nursing facilities,owned,leased or managed by us are certified
104、 to participate in Medicare.All but eight(seven owned and one managed)of our affiliated skillednursing facilities participate in Medicaid.All our homecare and hospice agencies participate in the Medicare and Medicaid programs,with Medicare comprising the majority of theirrevenue.Our behavioral healt
105、h hospitals also participate in the Medicare and Medicaid program.During the fiscal years presented,we received payments from Medicare and,if participating,from Medicaid.We record as receivables the amounts we ultimately expect toreceive under the Medicare and Medicaid programs and record into profi
106、t or loss any differences in amounts received at the time of interim or final settlements.There have notbeen any adjustments that have had a material adverse effect on the Company within the last three years.Medicare Legislation and Regulations Skilled Nursing Facilities Medicare is uniform nationwi
107、de and reimburses skilled nursing facilities under a fixed payment methodology called the Skilled Nursing Facility Prospective PaymentSystem(SNF PPS).The SNF PPS includes a case-mix model called the Patient-Driven Payment Model(PDPM”),which focuses on a residents condition and care needs,ratherthan
108、the amount of care provided to determine reimbursement levels.PDPM utilizes clinically relevant factors for determining Medicare payment by using ICD-10 diagnosis codesand other patient characteristics as the basis for patient classification.PDPM utilizes five case-mix adjusted payment components:ph
109、ysical therapy(PT”),occupational therapy(OT”),speech language pathology(SLP”),nursing and social services and non-therapy ancillary services(NTA”).It also uses a sixth non-case mix component to coverutilization of skilled nursing facility(SNF”)resources that do not vary depending on resident charact
110、eristics.7Table of Contents In July 2023,CMS released its final rule outlining fiscal year 2024 Medicare payment rates and policy changes for skilled nursing facilities,which began on October 1,2023.The fiscal year 2024 rule equates to a net increase of 4.0%,or approximately$1.4 billion,in Medicare
111、Part A payments to SNFs in fiscal year 2024 compared to 2023 levels.Therule includes a 3.0%market basket rate increase,a 3.6%market basket forecast error adjustment,less a 0.2%productivity adjustment,as well as a negative 2.3%,or approximately$789 million,decrease in 2024 SNF Payment Prospective Sys
112、tems rates as a result of the second phase of the Patient Driven Payment Model parity adjustment recalibration.The Coronavirus Aid,Relief and Economic Security Act(the CARES”Act)and other subsequent Congressional actions temporarily suspended Medicare sequestrationbeginning May 1,2020 through March
113、31,2022.The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent.Effective April 1,2022,sequestrationwas reinstated but only 1%was reduced from Medicare payments from April 1,2022 through June 30,2022.Beginning July 1,2022,sequestration was increased back to the 2%red
114、uction of Medicare payments for the remainder of 2022.The CARES Act extended the sequestration policy through 2030 in exchange for the temporary suspension.Homecares Medicare is uniform nationwide and reimburses homecare agencies under a Patient-Driven Groupings Model(PDGM”).Under PDGM,Medicare prov
115、ides homecareagencies with payments for each 30-day period of care provided to beneficiaries.If a beneficiary is still eligible for care after the end of the first 30-day payment period,a second 30-day payment period can begin.There are no limits to the number of periods of care a beneficiary who re
116、mains eligible for the home health benefit can receive.While payment foreach 30-day period of care is adjusted to reflect the beneficiarys health condition and needs,a special outlier provision exists to ensure appropriate payment for thosebeneficiaries that have the most expensive care needs.The pa
117、yment under the Medicare program is also adjusted for certain variables.In November 2023,CMS released its final rule outlining fiscal year 2024 Medicare payment rates.CMS projects payments to home health agencies in fiscal year 2024 willincrease in aggregate by 0.8%,or$140 million.The increase is th
118、e result of a 3.3%market basket update,reduced by a 0.3%productivity adjustment.The increase is offset by abehavioral adjustment that will cut payments by a net 2.6%.The behavioral adjustment was designed to achieve budget-neutral implementation of the PDPM.Finally,CMS alsoadjusted the fixed-dollar
119、loss ratio for outlier payments,which will increase payments by 0.4%.Hospice Medicare payment rates are calculated as daily rates for each of four levels of care we deliver.Rates are set based on specific levels of care,are adjusted by a wage indexto reflect healthcare labor costs across the country
120、 and are established annually through federal legislation.The following are the four levels of care provided under the hospicebenefit:Routine Home Care.Care that is not classified under any of the other levels of care,such as the work of nurses,social workers or home health aides.General Inpatient C
121、are.Pain control or acute or chronic symptom management that cannot be managed in a setting other than an inpatient Medicare-certifiedfacility,such as a hospital,skilled nursing facility or hospice inpatient facility.Continuous Home Care.Care for patients experiencing a medical crisis that requires
122、nursing services to achieve palliation and symptom control if the agencyprovides a minimum of eight hours of care within a 24-hour period.Inpatient Respite Care.Short-term,inpatient care to give temporary relief to the caregiver who regularly provides care to the patient.Medicare payments are subjec
123、t to two fixed annual caps,which are assessed on a provider number basis,and are broken into an inpatient cap amount and an overallpayment cap.These cap amounts are calculated and published by the Medicare fiscal intermediary on an annual basis.In July 2023,CMS released its final rule outlining fisc
124、al year 2024 Medicare payment rates.CMS issued a rate increase of 3.1%,or$780 million,effective October 1,2023.This increase is the result of a 3.3%market basket increase reduced by a 0.2%productivity adjustment.The FY2024 hospice payment update also includes an update to thestatutory aggregate cap
125、amount,which limits the overall payments per patient that are made annually.The cap amount for FY2024 is$33,494.8Table of Contents Medicaid Legislation and Regulations Skilled Nursing Facilities State Medicaid plans subject to budget constraints are of particular concern to us.Changes in federal fun
126、ding coupled with state budget problems and Medicaidexpansion under the Affordable Care Act have produced an uncertain environment.Some states will not keep pace with post-acute healthcare inflation.States are currently underpressure to pursue other alternatives to skilled nursing care such as commu
127、nity and homebased services.Medicaid programs are funded jointly by the federal government and the states and are administered by states under approved plans.Most state Medicaid payments aremade under a prospective payment system or under programs which negotiate payment levels with individual provi
128、ders.Some states use,or have applied to use,waivers grantedby CMS to implement expansion,impose different eligibility or enrollment restrictions,or otherwise implement programs that vary from federal standards.Effective July 1,2023 and for the fiscal year 2024,the state of Tennessee implemented spec
129、ific individual nursing facility increases.We estimate the resulting increase inrevenue for the 2024 fiscal year will be approximately$15,000,000 annually,or$3,750,000 per quarter.Effective October 1,2023 and for the fiscal year 2024,the state of South Carolina implemented specific individual nursin
130、g facility increases.We estimate the resultingincrease in revenue for the 2024 fiscal year will be approximately$9,000,000 annually,or$2,250,000 per quarter.Effective July 1,2023 and for the fiscal year 2024,the state of Missouri implemented specific individual nursing facility increases.We estimate
131、 the resulting increase inrevenue for the 2024 fiscal year will be approximately$5,000,000 annually,or$1,250,000 per quarter.We have also received from many of the states in which we operate a supplemental Medicaid payment to help mitigate the inflationary labor and medical supplies costsresulting f
132、rom the pandemic.For the years ended December 31,2023,2022 and 2021,we have recorded$20,214,000,$19,442,000 and$20,482,000,respectively,due to thesesupplemental Medicaid payments.We have recorded these payments in net patient revenues in our consolidated statements of operations.Competition In most
133、of the communities in which we operate health care facilities,we compete with other health care facilities in the area.There are hundreds of operators of post-acutehealthcare services in each of these states and no single operator,including us,dominates any of the markets,except for some small rural
134、 markets which might have limitedcompetition.In competing for patients and staff,we depend upon referrals from acute care hospitals,physicians,residential care facilities,church groups and other communityservice organizations.The reputation in the community and the physical appearance of our facilit
135、ies are important in obtaining patients since members of the patients familygenerally participate to a greater extent in selecting skilled nursing facilities than in selecting an acute care hospital.We believe that by providing and emphasizing rehabilitative,aswell as patient-centered healthcare ser
136、vices,we can broaden our patient base and to differentiate our operations from competing operations.As we continue to expand into all areas of senior health care,we monitor proposed or existing competing operations.Our development goal is to link our skilled nursingfacilities with our senior living
137、communities,home health and hospice operations,and behavioral health hospitals;therefore,obtaining a competitive advantage for our operations.Human Capital Employees As of December 31,2023,we had 13,123 full-time and part-time employees(partners”)through our Administrative Services Contractor(Nation
138、al Health Corporation).None of our partners were represented by a collective bargaining agreement.We believe relations with our partners are good.Our partners are guided by NHCs Code of Conduct,and they take pride in their work.The Companys partners appreciate different perspectives and embrace the
139、opportunity to work with those of diverse backgrounds.Total Rewards To attract and retain top talent,we believe we must offer and maintain competitive total rewards for our partners.These rewards include not only wages and salaries,butalso health,welfare,and retirement benefits.Our partners accrue e
140、arned time off(ETO”)with the flexibility to use this time at their discretion.We offer comprehensive healthinsurance coverage to all eligible partners as well as a partner and family sick time program which allows partners to accrue paid sick time based on hours worked and to use thattime for themse
141、lves or family members in need of care.We offer a 401(k)plan which includes matching company contributions.Also,to foster a stronger sense of ownership,weoffer an Employee Stock Purchase Plan where partners may purchase company stock through payroll deduction.9Table of Contents We face competition i
142、n employing and retaining nurses,technicians,aides,and other high-quality professional and nonprofessional employees.To enhance ourcompetitive position,we offer a robust educational tuition reimbursement program,an American Dietetic Association approved internship program,specialty designed nurse ai
143、detraining classes,and there is financial scholarship aid available for various health care vocation programs.We also conduct an Administrator in Training course,which is 24 months in duration,for the professional training of skilled nursing facility administrators.Presently,we have six(four male an
144、d two female)fulltime individuals in this program.All six of our regional vice presidents and 52 of our 68 health care center administrators are graduatesof this program.We regularly utilize third-party consultants to conduct anonymous surveys to seek feedback from our partners on a variety of topic
145、s,including but not limited to,confidence in company leadership,competitiveness of our compensation and benefits package,career growth opportunities and improvements on how we can continue to makeour company an employer of choice.The results are shared with our partners and reviewed by senior leader
146、ship,who analyze areas of progress or deterioration and prioritizeactions and activities in response to this feedback to drive meaningful improvements in partner engagement.Health and Safety The health and safety of our partners is our highest priority.We focus on safety training in order to maintai
147、n a safe work environment and minimize work-related injury.When the pandemic began,we ensured and continue to ensure that our partners have access to masks,thermometers,protective gloves,sanitizing supplies,and all personalprotective equipment needed in order to protect themselves.We closely followe
148、d the recommendations of the World Health Organization,the U.S.Centers for Disease Control andlocal governments,and we took action to ensure our partners were safe.Community We have a long and proud history of investing in the communities where we live and work.Through the National Health Foundation
149、(the Foundation”)and TheFoundation for Geriatric Education(TFGE”)we give back by providing grants to nonprofits and providing tuition reimbursement to partners to further their education in the fieldof geriatrics.We also have a Compassion Fund which is used to help support partners in times of need.
150、Many of our partners make a positive impact in the communities in whichthey live by donating their time and talent by volunteering and serving on boards of charitable organizations.Environmental Sustainability We are working diligently to minimize our effect on the environment by conserving energy a
151、nd protecting our natural resources.We are focusing on being more energyefficient and reducing our water use and wastewater discharges while continuing to provide a healthy environment for our patients,partners and visitors.We are committed toadhering to applicable federal,state and local environmen
152、tal regulations.Our goal is to minimize environmental risks to our patients and in the communities which we operate.Through recycling programs,we are working to reduce the amount of waste sent to landfills.Our electronic waste is recycled through a zero-landfill recycling company.Available Informati
153、on The Companys Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q and Current Reports on Form 8-K,and amendments to those reports filed or furnishedpursuant to Section 13(a)or 15(d)of the Securities Exchange Act of 1934,are available free of charge at ,as soon as reasonably practicable afte
154、r the reports areelectronically filed or furnished with the U.S.Securities and Exchange Commission(SEC).The SEC maintains a website that contains these reports as well as proxy statementsand other information regarding issuers that file electronically.The SECs website is at www.sec.gov.NHCs website
155、and its content are not deemed incorporated by reference intothis report.10Table of Contents ITEM 1A.RISK FACTORS You should carefully consider the risk factors set forth below,as well as the other information contained in this Annual Report on Form 10K.These risk factors shouldbe considered in conn
156、ection with evaluating the forwardlooking statements contained in this Annual Report on Form 10K,because these factors could cause the actual resultsand conditions to differ materially from those projected in forwardlooking statements.The risks described below are not the only risks facing us.Additi
157、onal risks anduncertainties that are not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations.Any of the followingrisks could materially adversely affect our business,financial condition or results of operations and cash fl
158、ows.Risks Relating to Our Operations COVID-19 and other pandemics,epidemics,or outbreaks of a contagious illness may adversely affect our operating results,cash flows and financial condition.TheCOVID-19 pandemic had a negative impact on our business and results of operations.COVID-19 and other pande
159、mics,epidemics,or outbreaks of a contagious illness,and similarevents,may cause harm to us,our partners(employees),our patients,our vendors and supply chain partners,and financial institutions,which could have a material adverse effecton our results of operations,financial condition and cash flows.T
160、he impacts may include,but would not be limited to:Disruption to operations due to the unavailability of partners due to illness,quarantines,risk of illness,travel restrictions or factors that limit our existing or potentialworkforce.Increased costs and staffing requirements related to additional CD
161、C protocols,federal and state workforce protection and related isolation procedures,includingobligations to test patients and staff.Decreased availability and increased cost of supplies due to increased demand around essential personal protective equipment(PPE”),sanitizers and cleaning suppliesinclu
162、ding disinfecting agents,and food and food-related products due to increased global demand and disruptions along the global supply chains of these manufacturesand distributors.Decreased census across all our operations,which could negatively impact our operating cash flows and financial condition.El
163、evated partner turnover which may increase payroll expense,increase third party agency nurse staffing,and recruiting-related expenses.Increased risk of litigation and related liabilities arising in connection with patient or partner illness,hospitalization and/or death.Significant disruption of the
164、global financial markets,which could have a negative impact on our ability to access capital in the future.The further spread of COVID-19,and the measures taken by federal and state governments and local health authorities intended to limit the spread of the virus,couldimpact the resources required
165、to carry out our business as usual and may have a material adverse effect on our results of operations,financial condition and cash flows.The extentto which the COVID-19 pandemic will impact our business and our financial results will depend on future developments,which are highly uncertain and cann
166、ot be predicted.Suchdevelopments may include the ongoing geographic spread of the virus,the timing,availability and effectiveness of medical treatments and vaccines(including additional doses ofvaccines),the impact of any mutations of the virus,and the type,duration and efficacy of actions that may
167、be taken by various governmental authorities to contain the virus ortreat its impact,among others.Any of these developments,individually or in aggregate,could materially impact our business and our financial results and condition.We depend on reimbursement from Medicare,Medicaid and other thirdparty
168、 payors,and reimbursement rates from such payors may be reduced.We derive asubstantial portion of our revenue from thirdparty payors,including the Medicare and Medicaid programs.Thirdparty payor programs are highly regulated and are subject tofrequent and substantial changes.Changes in the reimburse
169、ment rate or methods of payment from thirdparty payors,including the Medicare and Medicaid programs,or theimplementation of other measures to reduce reimbursements for our services has in the past,and could in the future,result in a substantial reduction in our revenues and operatingmargins.For exam
170、ple,the Budget Control Act of 2011 requires automatic spending reductions to reduce the federal deficit,imposing Medicare spending reductions of up to 2%perfiscal year,with a uniform percentage across all Medicare programs.CMS began imposing a 2%reduction on Medicare claims in 2013,and these reducti
171、ons have been extendedthrough 2030.The CARES Act and related legislation temporarily suspended this 2%reduction through March 31,2022,and reduced the sequestration adjustment from 2%to 1%from April 1 through June 30,2022.The full 2%reduction took effect July 1,2022.11Table of Contents Net revenue re
172、alizable under thirdparty payor agreements can change after examination and retroactive adjustment by payors during the claims settlement processes oras a result of postpayment audits.Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or re
173、asonable becauseadditional documentation is necessary or because certain services were not covered or were not reasonable and medically necessary.Our hospice agencies are subject to two payment caps that limit Medicare reimbursement each federal fiscal year,an inpatient cap and an aggregate cap.The
174、inpatient caplimits the number of days of inpatient care to no more than 20%of total patient care days.The aggregate cap limits the total Medicare reimbursement that a hospice may receivebased on an annual per-beneficiary cap amount and the number of Medicare patients served.If payments received by
175、any one of our hospice provider numbers exceeds theinpatient or aggregate caps,we are required to reimburse Medicare for payments received in excess of the caps,which could have a material adverse effect on our business.We cannot assure you that adequate reimbursement levels will continue to be avai
176、lable for the services provided by us.Further limits on the scope of services reimbursedand on reimbursement rates could have a material adverse effect on our liquidity,financial condition and results of operations.It is possible that the effects of further refinementsto payment systems that result
177、in lower payments to us or cuts in state Medicaid funding could have a material adverse effect on our results of operations.See Item 1,Business Government Regulation and Business-Medicare Legislation and Regulations.The industry trend toward value-based purchasing may negatively impact our revenues.
178、There continues to be a growing trend in the healthcare industry among bothgovernment and commercial payors toward value-based purchasing of healthcare services.Value-based purchasing programs emphasize quality and efficiency of services,ratherthan volume of services.For example,CMS reimburses SNF p
179、roviders using the PDPM,a payment methodology that classifies patients into payment groups based on clinicalfactors using diagnosis codes rather than by volume of services.In addition,CMS requires SNFs,home health agencies and hospices to report quality data in order to receive fullreimbursement.Fai
180、lure to report quality data or poor performance may negatively impact the amount of reimbursement received.CMS publishes quality measure data onlinethrough its Care Compare website,to allow the public to search and compare data for Medicare-certified providers.Under the SNF Value-Based Purchasing Pr
181、ogram,CMS reduces SNF Medicare payments by 2 percentage points and redistributes the majority of these funds as incentivepayments based on SNF quality measure performance.In January 2022,CMS began implementing a nationwide expansion of the Home Health Value-Based Purchasing(HHVBP)Model.Under the mod
182、el,home health agencies will receive increases or decreases to their Medicare fee-for-service payments of up to 5%,based on performance against specificquality measures relative to the performance of other providers.Data collected in each performance year will impact Medicare payments two years late
183、r.Calendar year 2023 is thefirst performance year under the expanded HHVBP Model that will affect payments.Other initiatives aimed at improving the cost of care include alternative payment models,such as ACOs and bundled payment arrangements.Medicare and manycommercial third-party payors are impleme
184、nting ACO models,in which groups of providers share in the benefit and risk of providing care to an assigned group of individuals at alower cost.In addition,CMS is implementing programs to bundle acute care and post-acute care reimbursement to hold providers accountable for costs across a broadercon
185、tinuum of care.In October 2021,the CMS Innovation Center released an outline of its strategy for the next decade,noting the need to accelerate the movement to value-basedcare and drive broader system transformation.By 2030,the CMS Innovation Center aims to have all fee-for-service Medicare beneficia
186、ries and the vast majority of Medicaidbeneficiaries in an accountable care relationship with providers who are responsible for quality and total medical costs.The CMS Innovation Center signaled its intent tostreamline its payment models and to increase provider participation through implementation o
187、f more mandatory models.These reimbursement methodologies and other value-based care initiatives are likely to continue and expand,at both the federal and state levels and in public andcommercial health plans.It is unclear whether alternative payment models will successfully coordinate care and redu
188、ce costs or whether they will decrease overall reimbursement.As a result,it is difficult to predict how the trend toward value-based purchasing will ultimately affect our business.If we fail to meet or exceed quality performance standardsunder any applicable value-based purchasing program,perform at
189、 a level below the outcomes demonstrated by our competitors,or otherwise fail to effectively provide orcoordinate the efficient delivery of quality health care services,our reputation in the industry may be negatively impacted,we may receive reduced reimbursement amounts,and wemay owe repayments to
190、payors,causing our revenues to decline.Failure to respond successfully to value-based purchasing trends could negatively impact our business,resultsof operations and/or financial condition.By undertaking to provide management services,advisory services,and/or financial services to other entities,we
191、become at least partially responsible for meetingthe regulatory requirements of those entities.We provide management and/or financial services to skilled nursing facilities,assisting living facilities and independent livingfacilities owned by third parties.The Risk Factors contained herein as applyi
192、ng to us may in many instances apply equally to these other entities for which we provide services.We have in the past and may in the future be subject to claims from the entities to which we provide management,advisory or financial services,or to the claims of third parties tothose entities.Any adv
193、erse determination in any legal proceeding regarding such claims could have a material adverse effect on our business,our results of operation,ourfinancial condition and cash flows.We provide management services to skilled nursing facilities and other healthcare facilities under terms whereby the pa
194、yments for our services are subject tosubordination to other expenditures of the healthcare facility.Furthermore,there are certain third parties with whom we have contracted to provide services and which we havedetermined,based on insufficient historical collections and the lack of expected future c
195、ollections,that the service revenue realization is uncertain.We may,therefore,makeexpenditures related to the provision of services for which we are not paid.12Table of Contents The cost to replace or retain qualified nurses,health care professionals and other key personnel may adversely affect our
196、financial performance,and we may not beable to comply with certain states staffing requirements.We could experience significant increases in our operating costs due to shortages in qualified nurses,health careprofessionals and other key personnel.The market for these key personnel is highly competit
197、ive.We,like other health care providers,have experienced difficulties in attracting andretaining qualified personnel,especially facility administrators,nurses,certified nurses aides and other important health care providers.There is currently a shortage of nurses,andtrends indicate this shortage wil
198、l continue or worsen in the future.The difficulty our skilled nursing facilities are experiencing in hiring and retaining qualified personnel hasincreased our average wage rate.We may continue to experience increases in our labor costs due to higher wages and greater benefits required to attract and
199、 retain qualified healthcare personnel.Our ability to control labor costs will significantly affect our future operating results.Additionally,if we fail to attract and retain qualified and skilled personnel,ourability to conduct our business operations effectively could be harmed.Certain states in w
200、hich we operate skilled nursing facilities have adopted minimum staffing standards and additional states may also establish similar requirements in thefuture.Our ability to satisfy these requirements will depend upon our ability to attract and retain qualified nurses,certified nurses assistants,and
201、other staff.Failure to comply withthese requirements may result in the imposition of fines or other sanctions.If states do not appropriate sufficient additional funds(through Medicaid program appropriations orotherwise)to pay for any additional operating costs resulting from minimum staffing require
202、ments,our profitability may be adversely affected.The staffing level required to receive a 5-star rating in the CMS Nursing Home Five Star Quality Rating System is determined based on analysis of the relationshipbetween staffing levels and measures of nursing home quality.CMS places a strong emphasi
203、s on registered nurse(RN”)staffing.CMS posts information on nursing homestaffing measures on the Care Compare website including staff turnover rates and weekend staffing levels.This new data has been incorporated into the Nursing Home Five StarQuality Rating System.Although we currently have no coll
204、ective bargaining agreements with unions at our facilities,there is no assurance this will continue to be the case.If any of our facilitiesenter into collective bargaining agreements with unions,we could experience or incur additional administrative expenses associated with union representation of o
205、ur employees.Our senior management team has extensive experience in the healthcare industry.We believe they have been instrumental in guiding our business,instituting valuableperformance and quality monitoring,and driving innovation.Accordingly,our future performance is substantially dependent upon
206、the continued services of our seniormanagement team.The loss of the services of any of these persons could have a material adverse effect upon us.Disasters and similar events,which may increase as a result of climate change,may seriously harm our business.Natural and manmade disasters and similar ev
207、ents,including terrorist attacks and acts of nature such as hurricanes,tornadoes,earthquakes and wildfires,may cause damage or disruption to us,our employees and our facilities,which could have an adverse impact on our patients and our business.In order to provide care for our patients,we are depend
208、ent on consistent and reliable delivery of food,pharmaceuticals,utilities and other goods to our facilities,and the availability of employees to provide services at our facilities.If the delivery of goods or the ability of employeesto reach our facilities were interrupted in any material respect due
209、 to a natural disaster or other reasons,it would have a significant impact on our facilities and our business.Furthermore,the impact,or impending threat,of a natural disaster has in the past and may in the future require that we evacuate one or more facilities,which would be costly andwould involve
210、risks,including potentially fatal risks,for the patients.The impact of disasters and similar events is inherently uncertain.Such events could harm our patients andemployees,severely damage or destroy one or more of our facilities,harm our business,reputation and financial performance,or otherwise ca
211、use our business to suffer in waysthat we currently cannot predict.Significant changes in the climate may occur in areas where our facilities are located and we may experience more frequent extreme weather events which may result inphysical damage to or a decrease in demand for our facilities locate
212、d in these areas or affected by these conditions.In addition,changes in federal and state legislation andregulation on climate change could result in increased capital expenditures to improve the energy efficiency of our facilities without a corresponding increase in revenue.Climatechange may also h
213、ave indirect effects on our business by increasing the cost of(or making unavailable)property insurance on terms we find acceptable.Should the impact ofclimate change be material in nature,including destruction of our facilities,or occur for lengthy periods of time,our financial condition or results
214、 of operations may be adverselyaffected.Future acquisitions or new developments may be difficult to complete,use significant resources,or be unsuccessful and could expose us to unforeseen liabilities.Wemay selectively pursue acquisitions or new developments in our target markets.Acquisitions and new
215、 developments may involve significant cash expenditures,debt incurrence,capital expenditures,additional operating losses,amortization of the intangible assets of acquired companies,dilutive issuances of equity securities and other expenses that couldhave a material adverse effect on our financial co
216、ndition and results of operations.Acquisitions also involve numerous other risks,including difficulties integrating acquiredoperations,personnel and information systems,diversion of managements time from existing operations,potential losses of key employees or customers of acquired companies,assumpt
217、ions of significant liabilities,exposure to unforeseen liabilities of acquired companies and increases in our indebtedness.13Table of Contents We cannot assure that we will succeed in obtaining financing for any acquisitions at a reasonable cost or that any financing will not contain restrictive cov
218、enants thatlimit our operating flexibility.We also may be unable to operate acquired facilities profitably or succeed in achieving improvements in their financial performance.We also may face competition in acquiring any facilities.Our competitors may acquire or seek to acquire many of the facilitie
219、s that would be suitable acquisitioncandidates for us.This could limit our ability to grow by acquisitions or increase the cost of our acquisitions.In addition,federal and state regulation may adversely impact our ability to complete acquisitions or pursue new developments.For example,a Medicare reg
220、ulation knownas the 36 Month Rule”prohibits the buyer of a Medicare-certified home health agency from assuming the Medicare billing privileges of an acquired agency if the acquired agencyeither enrolled in Medicare or underwent a change in majority ownership fewer than 36 months prior to the acquisi
221、tion,subject to certain exceptions.Instead,the buyer must enrollthe acquired home health agency as a new provider with Medicare.The 36 Month Rule may increase competition for acquisition targets that are not subject to the rule and maycause significant Medicare billing delays for purchases of home h
222、ealth agencies that are subject to the rule.In addition,our ability to expand operations in a state depends on ourability to obtain necessary state licenses to operate and,where required,certificate of need approval.States may limit the number of licenses they issue.The failure to obtain anyrequired
223、 license or certificate of need could impair our ability to operate or expand our business.Upkeep of healthcare properties is capital intensive,requiring us to continually direct financial resources to the maintenance and enhancement of our physical plantand equipment.As of December 31,2023,we lease
224、d or owned 60 skilled nursing facilities,24 assisted living facilities,3 behavioral health hospitals,and four independent livingfacilities.Our ability to maintain and enhance our physical plant and equipment in a suitable condition to meet regulatory standards,operate efficiently and remain competit
225、ive inour markets requires us to commit a substantial portion of our free cash flow to continued investment in our physical plant and equipment.Certain of our competitors may operatecenters that are not as old as our centers,or may appear more modernized than our centers,and therefore may be more at
226、tractive to prospective customers.In addition,the cost toreplace our existing centers through acquisition or construction is substantially higher than the carrying value of our centers.We are undertaking a process to allocate moreaggressive capital spending within our owned and leased facilities in
227、an effort to address issues that arise in connection with an aging physical plant.If factors,including factors indicated in these Risk Factors and other factors beyond our control render us unable to direct the necessary financial and human resourcesto the maintenance,upgrade and modernization of ou
228、r physical plant and equipment,our business,results of operations,financial condition and cash flow could be adverselyimpacted.We are defendants in significant legal actions,which are commonplace in our industry,and which could subject us to increased operating costs and substantialuninsured liabili
229、ties,which would materially and adversely affect our liquidity and financial condition.As is typical in the health care industry,we are subject to claims thatour services have resulted in resident injury or other adverse effects.We,like our industry peers,have experienced an increasing trend in the
230、frequency and severity ofprofessional liability and workers compensation claims and litigation asserted against us.In some states in which we have significant operations,insurance coverage for the riskof punitive damages arising from professional liability claims and/or litigation may not,in certain
231、 cases,be available due to state law prohibitions or limitations of availability.Wecannot assure you that we will not be liable for punitive damage awards that are either not covered or are in excess of our insurance policy limits.We also believe that there havebeen,and will continue to be,governmen
232、tal investigations of longterm care providers,particularly in the area of Medicare/Medicaid false claims,as well as an increase inenforcement actions resulting from these investigations.Insurance is not available to cover such losses.Any adverse determination in a legal proceeding or governmentalinv
233、estigation,whether currently asserted or arising in the future,could have a material adverse effect on our financial condition.Due to the rising cost and limited availability of professional liability and workers compensation insurance,we are largely selfinsured on all of these programs and as aresu
234、lt,there is no limit on the maximum number of claims or amount for which we or our insurance subsidiaries can be liable in any policy period.Although we base our lossestimates on independent actuarial analyses using the information we have to date,the amount of the losses could exceed our estimates.
235、In the event our actual liability exceedsour estimates for any given period,our results of operations and financial condition could be materially adversely impacted.In addition,our insurance coverage might not cover allclaims made against us.If we are unable to maintain our current insurance coverag
236、e,if judgments are obtained in excess of the coverage we maintain,if we are required to payuninsured punitive damages,or if the number of claims settled within the selfinsured retention currently in place significantly increases,we could be exposed to substantialadditional liabilities.We cannot assu
237、re you that the claims we pay under our selfinsurance programs will not exceed the reserves we have set aside to pay claims.The number ofclaims within the selfinsured retention may increase.14Table of Contents If we fail to compete effectively with other health care providers,our revenues and profit
238、ability may decline.The health care services industry is highly competitive.Our skilled nursing facilities,assisted living facilities,independent living facilities,hospices,home care services and other operations compete on a local and regional basis withother nursing centers,health care providers,a
239、nd senior living service providers that provide services similar to those we offer.Some of our competitors facilities are located innewer buildings and may offer services not provided by us or are operated by entities having greater financial and other resources than us.Certain of our competitors ar
240、e operatedby not-for-profit,non-taxpaying or governmental agencies that can finance capital expenditures on a tax-exempt basis and that receive funds and charitable contributionsunavailable to us.Consolidations of not-for-profit entities may intensify this competitive pressure.Many competing general
241、 acute care hospitals are larger and more establishedthan our facilities.There is also increasing consolidation in the third-party payer industry,including vertical integration efforts among third-party payers and healthcare providers.Healthcare industry participants are increasingly implementing ph
242、ysician alignment strategies,such as employing physicians,acquiring physician practice groups andparticipating in ACOs or other clinical integration models.Other industry participants,such as large employer groups and their affiliates,may intensify competitive pressure andaffect the industry in ways
243、 that are difficult to predict.Trends toward clinical transparency and value-based purchasing may impact our competitive position and patient volumes.Our facilities compete based on factors such as our reputation for quality care;the commitment and expertise of our staff;the quality and comprehensiv
244、eness of ourtreatment programs;the physical appearance,location and condition of our facilities and to a limited extent,the charges for services.In addition,we compete with other health careproviders for customer referrals from hospitals and other providers.As a result,a failure to compete effective
245、ly with respect to referrals may have an adverse impact on ourbusiness.We cannot assure that increased competition in the future will not adversely affect our financial condition and results of operations.Possible changes in the case mix of patients and payor mix may significantly affect our profita
246、bility.The sources and amounts of our patient revenues will bedetermined by a number of factors,including licensed bed capacity and occupancy rates of our facilities,the mix of patients and the rates of reimbursement among payors.Changes in the case mix of the patients as well as payor mix among pri
247、vate pay,Medicare and Medicaid will significantly affect our profitability.Particularly,any significantincrease in our Medicaid population could have a material adverse effect on our financial position,results of operations and cash flow,especially if states operating theseprograms continue to limit
248、,or more aggressively seek limits on,reimbursement rates or service levels.Private thirdparty payors continue to try to reduce health care costs.Private thirdparty payors are continuing their efforts to control health care costs through directcontracts with health care providers,increased utilizatio
249、n review and greater enrollment in managed care programs and preferred provider organizations,among other strategies.These private payors increasingly are demanding discounted fee structures and the assumption by health care providers of all or a portion of the financial risk.The ability ofprivate p
250、ayors to control healthcare costs may be enhanced by the increasing consolidation of insurance companies and the vertical integration of health insurers with healthcareproviders.We could be adversely affected by the continuing efforts of private thirdparty payors to limit the amount of reimbursement
251、 we receive for health care services.Wecannot assure you that reimbursement under private thirdparty payor programs will remain at levels comparable to present levels or will be sufficient to cover the costs allocableto patients eligible for reimbursement pursuant to such programs.Future changes in
252、the reimbursement rates or methods of private or thirdparty payors or the implementation ofother measures to reduce reimbursement for our services could result in a substantial reduction in our net operating revenues.As a result of competitive pressures,our ability tomaintain operating margins throu
253、gh price increases to private patients is limited.In addition,the failure to obtain,renew,or retain payor agreements with favorable contract terms may negatively impact our results of operations and/or revenue.Ourability to contract with payors depends on our quality of service and reputation,as wel
254、l as other factors of which we may have little or no control,such as state appropriations andchanges in provider eligibility requirements.We are permitted to incur substantially more debt,which could further exacerbate the risks described above.We and our subsidiaries may be able to incur substantia
255、lindebtedness in the future.If debt is added,the related risks that we now face could intensify.Risks Related to Government Regulation We conduct business in a heavily regulated industry,and changes in,or violations of regulations may result in increased costs or sanctions that reduce our revenueand
256、 profitability.In the ordinary course of our business,we are regularly subject to inquiries,investigations and audits by federal and state agencies to determine whether we arein compliance with regulations governing the operation of,and reimbursement for,skilled nursing facilities and nursing homes,
257、assisted living and independent living facilities,hospice,home health agencies,behavioral health hospitals,and our other operating areas.These regulations include those relating to licensure,certification and enrollment withgovernment programs,conduct of operations,ownership of facilities,constructi
258、on of new and additions to existing facilities,allowable costs,adequacy and quality of services,qualifications and training of personnel,communications with patients and consumers,billing and coding for services,adequacy and manner of documentation for servicesprovided,minimum direct care spending r
259、atios,services and prices for services,and pharmaceuticals and controlled substances.Various laws,including federal and state antikickback and antifraud statutes,prohibit certain business practices and relationships that might affect the provision and cost of health care services reimbursable under
260、federaland/or state health care programs such as Medicare and Medicaid,including the payment or receipt of remuneration for the referral of patients whose care will be paid by federalgovernmental programs or fee-splitting arrangements between health care providers that are designed to induce the ref
261、erral of patients to a provider for medical products andservices.Furthermore,many states prohibit business corporations from providing or holding themselves out as a provider of medical care.15Table of Contents In addition,the Stark Law broadly defines the scope of prohibited physician referrals und
262、er federal health care programs to providers with which they have ownership orother financial arrangements.Many states have adopted,or are considering,legislative proposals similar to these laws,some of which extend beyond federal health care programs,to prohibit the payment or receipt of remunerati
263、on for the referral of patients and physician referrals regardless of the source of the payment for the care.We also are subject to potential lawsuits under a federal whistle-blower statute designed to combat fraud and abuse in the health care industry,known as the federal FalseClaims Act.These laws
264、uits can involve significant monetary awards to private plaintiffs who successfully bring these suits.When a private party brings a qui tam action under theFalse Claims Act,it files the complaint with the court under seal,and the defendant will generally not be aware of the lawsuit until the governm
265、ent makes a determination whether itwill intervene and take a lead in the litigation.These laws and regulations are complex and limited judicial or regulatory interpretation exists.We cannot assure you that governmental officials charged withresponsibility for enforcing the provisions of these laws
266、and regulations will not assert that one or more of our arrangements are in violation of the provisions of such laws andregulations.The regulatory environment surrounding the postacute and longterm care industry has intensified,particularly for larger forprofit,multifacility providers like us.Thefed
267、eral government has imposed extensive enforcement policies resulting in a significant increase in the number of inspections,citations of regulatory deficiencies and otherregulatory sanctions,including terminations from the Medicare and Medicaid programs,denials of payment for new Medicare and Medica
268、id admissions and civil monetarypenalties.If we fail to obtain or renew required regulatory approvals or licenses or fail to comply,or are perceived as failing to comply,with other extensive laws and regulationsapplicable to our business,we could have our licenses suspended or revoked,become ineligi
269、ble to receive government program reimbursement,be required to refund amountsreceived from Medicare,Medicaid or private payors,suffer civil or criminal penalties,suffer damage to our reputation in various markets or be required to make significant changesto our operations.Any of these sanctions coul
270、d have a material adverse effect on our operations and financial condition.Furthermore,should we lose licenses or certifications formany of our facilities as a result of regulatory action or otherwise,we could be deemed in default under some of our agreements,including agreements governing outstandi
271、ngindebtedness.We have established policies and procedures that we believe are sufficient to ensure that we will operate in substantial compliance with these antifraud and abuserequirements.From time to time,we may seek guidance as to the interpretation of these laws;however,there can be no assuranc
272、e that such laws will ultimately be interpreted in amanner consistent with our practices.In addition,we could be forced to expend considerable resources responding to an investigation or other enforcement action under theselaws or regulations.While we believe that our business practices are consiste
273、nt with Medicare and Medicaid criteria,those criteria are often vague and subject to change andinterpretation.We are unable to predict the future course of federal,state and local regulation or legislation,including Medicare and Medicaid statutes and regulations,or theintensity of federal and state
274、enforcement actions.Aggressive antifraud actions have had and could have an adverse effect on our financial position,results of operations andcash flows.See Item 1,Business Government Regulation.16Table of Contents We face uncertainty related to the COVID-19 public health emergencys(PHE)expiration a
275、nd wind-down,which could have a material adverse affect on ourbusiness,financial condition,results of operations and cash flows.The extent to which the COVID-19 PHEs termination will affect our operations will depend on futuredevelopments,which are highly uncertain and cannot be predicted.There rema
276、ins uncertainty as to what changes will be made to the Health and Human Services emergencyresponse requirements for our skilled nursing facilities and senior living facilities in order to better respond to the issues experienced during the COVID-19 PHE.To the extentCOVID-19 is endemic in nature,we m
277、ay face continued challenges from ongoing infection control and emergency preparedness requirements made part of state laws or regulations.Additionally,the long-term effects of the COVID-19 pandemic may include long-term decline in demand for care in skilled nursing facilities and senior living faci
278、lities.Our business may be impacted by healthcare reform efforts.In recent years,the U.S.Congress and certain state legislatures have considered and passed a large numberof laws intended to result in significant changes to the healthcare industry,including the ACA.The ACA affects how healthcare serv
279、ices are delivered and reimbursed through theexpansion of public and private health insurance coverage,reduction of growth in Medicare and Medicaid spending,and the establishment and expansion of programs that tiereimbursement to quality and integration.The ACA has been subject to legislative and re
280、gulatory changes and court challenges.Although the current presidential administrationhas indicated that it generally intends to protect and strengthen the ACA,it is possible that there may be continued changes to the ACA,its implementation or its interpretation.Changes by Congress or government age
281、ncies could eliminate or alter provisions beneficial to us,while leaving in place provisions reducing our reimbursement or otherwisenegatively impacting our business.There is also uncertainty regarding whether,when and what other health reform measures will be adopted,and the impact of such efforts
282、on providers as well as otherhealthcare industry participants.Some members of Congress have proposed expanding government-funded coverage,including proposals to expand coverage of federally-fundedinsurance programs as an alternative to private insurance or to establish a single payor system(such ref
283、orms are often referred to as Medicare for All”),and some states haveimplemented or proposed public health insurance options.In addition,CMS administrators may make changes to Medicaid payment models or grant additional flexibilities to states in the administration of state Medicaid programs,includi
284、ng by expanding the scope of waivers under which states may implement Medicaid expansion provisions,impose different eligibility or enrollment restrictions,or otherwiseimplement programs that vary from federal standards.Other industry participants,such as private payors,may also introduce financial
285、or delivery system reforms.We are unable topredict the nature and success of such initiatives.Healthcare reform initiatives may have an adverse effect on our business,financial condition,and operating results.We are required to comply with laws governing the transmission and privacy and security of
286、health information.The Health Insurance Portability and AccountabilityAct of 1996,or(HIPAA),requires the use of uniform electronic data transmission standards for healthcare claims and payment transactions submitted or received electronically.In addition,as required by HIPAA,the HHS has issued priva
287、cy and security regulations that extensively regulate the use and disclosure of individually identifiable healthinformation(known as Protected Health Information,or PHI)and require covered entities,including healthcare providers and health plans,and vendors known as businessassociates,to implement a
288、dministrative,physical and technical safeguards to protect the security of PHI.Covered entities must report breaches of unsecured PHI withoutunreasonable delay to affected individuals,HHS and,in the case of larger breaches,the media.The privacy,security and breath notification regulations have impos
289、ed,and willcontinue to impose,significant compliance costs on our operations.17Table of Contents There are numerous other laws and legislative and regulatory initiatives at the federal and state levels addressing privacy and security concerns.These laws vary and mayimpose additional obligations or p
290、enalties.For example,additional federal and state obligations may apply to behavioral,addictive disorder and other types of sensitiveinformation.Further,various state laws and regulations may require us to notify affected individuals in the event of a data breach involving individually identifiable
291、information(even if no health-related information is involved).In addition,the Federal Trade Commission uses its consumer protection authority to initiate enforcement actions in response todata breaches.To the extent we fail to comply with one or more federal and/or state privacy and security requir
292、ements or if we are found to be responsible for the non-complianceof our vendors,we could be subject to substantial fines or penalties,as well as third-party claims,and suffer harm to our reputation,which could have a material adverse effect onour business,financial position,results of operations an
293、d liquidity.In addition,health care providers and industry participants are also subject to a growing number of requirements intended to promote the interoperability and exchange ofpatient health information.For example,most health care providers and certain other entities are subject to information
294、 blocking restrictions pursuant to the 21st Century Cures Actthat prohibit practices that are likely to interfere with the access,exchange or use of electronic health information,except as required by law or specified by HHS as a reasonableand necessary activity.We are subject to employment-related
295、laws and regulations which could increase our cost of doing business and subject us to significant back pay awards,fines andlawsuits.Our operations are subject to a variety of federal,state and local employment-related laws and regulations,including,but not limited to,the U.S.Fair Labor StandardsAct
296、,which governs such matters as minimum wages,the Family Medical Leave Act,overtime pay,compensable time,record keeping and other working conditions,Title VII of theCivil Rights Act,the Employee Retirement Income Security Act,the Americans with Disabilities Act,the National Labor Relations Act,regula
297、tions of the Equal EmploymentOpportunity Commission,regulations of the Office of Civil Rights,regulations of the Department of Labor(DOL),federal and state wage and hour laws,and a variety of similar lawsenacted by the federal and state governments that govern these and other employment-related matt
298、ers.Because labor represents such a large portion of our operating costs,compliance with these evolving federal and state laws and regulations could substantially increase our cost of doing business while failure to do so could subject us to significantback pay awards,fines and lawsuits.In addition,
299、federal proposals to introduce a system of mandated health insurance and flexible work time and other similar initiatives could,ifimplemented,adversely affect our operations.Our failure to comply with federal and state employment-related laws and regulations could have a material adverse effect on o
300、urbusiness,financial position,results of operations and liquidity.Our business is subject to a variety of federal,state and local environmental laws and regulations.As a healthcare provider,we face regulatory requirements in areas ofair and water quality control,medical and lowlevel radioactive wast
301、e management and disposal,asbestos management,response to mold and leadbased paint in our facilities andemployee safety.As an operator of healthcare facilities,we also may be required to investigate and remediate hazardous substances that are located on and/or under the property,including any such s
302、ubstances that may have migrated off,or may have been discharged or transported from the property.Part of our operations involves the handling,use,storage,transportation,disposal and discharge of medical,biological,infectious,toxic,flammable,and other hazardous materials,wastes,pollutants,or contami
303、nants.In addition,we are sometimes unable to determine with certainty whether prior uses of our facilities and properties or surrounding properties may have produced continuing environmentalcontamination or noncompliance,particularly where the timing or cost of making such determinations is not deem
304、ed cost effective.These activities,as well as the possiblepresence of such materials in,on and under our properties,may result in damage to individuals,property,or the environment;may interrupt operations or increase costs;mayresult in legal liability,damages,injunctions or fines;may result in inves
305、tigations,administrative proceedings,penalties or other governmental agency actions;and may not becovered by insurance.We believe that we are in material compliance with applicable environmental and occupational health and safety requirements.However,we cannot assure you that we willnot encounter en
306、vironmental liabilities in the future,and such liabilities may result in material adverse consequences to our operations or financial condition.We are subject to federal and state income taxes.Changes in tax laws and regulations or the interpretation of such laws could adversely affect our position
307、onincome taxes and estimated income liabilities.Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition ofincome is subject to judgment.We believe we have adequate provisions for unrecognized tax benefits related to uncertain tax
308、positions.Although we believe we have accuratelyestimated our tax liabilities,uncertainty of interpretation by various tax authorities and the possibility that there are issues that have not been recognized by management couldresult in additional tax liability.We believe that our liabilities reflect
309、 the anticipated outcome of known uncertain tax positions in conformity with ASC Topic 740 Income Taxes.We are also subject to regular reviews,examinations,and audits by the Internal Revenue Service and other taxing authorities with respect to our taxes.There areuncertainties and ambiguities in the
310、application of the Tax Cuts and Jobs Act of 2017(Tax Act)and it is possible that the IRS could issue subsequent guidance or take positionson audit that differ from our interpretations and assumptions.Although we believe our tax estimates are reasonable,if a taxing authority disagrees with the positi
311、ons we havetaken,we could face additional tax liability,including interest and penalties.Our effective tax rate could be adversely affected by changes in the mix of earnings in states withdifferent statutory tax rates,changes in the valuation of deferred tax assets and liabilities,change in tax laws
312、 and regulations,changes in our interpretations of tax laws,includingthe Tax Act.Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.There can be no assurance that payment of suchadditional amounts upon final adjudication of any disp
313、utes will not have a material impact on our results of operations and financial position.18Table of Contents Risks Related to Our Structure and Public Company Compliance Failure to maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could result in a restatem
314、ent of our financial statements,cause investors to lose confidence in our financial statements and our company and have a material adverse effect on our business and stock price.We produce ourconsolidated financial statements in accordance with the requirements of U.S.GAAP.Effective internal control
315、s are necessary for us to provide reliable financial reports to helpmitigate the risk of fraud and to operate successfully as a publicly traded company.As a public company,we are required to document and test our internal control procedures inorder to satisfy the requirements of Section 404 of the S
316、arbanesOxley Act of 2002,or Section 404,which requires annual management assessments of the effectiveness of ourinternal controls over financial reporting.Testing and maintaining internal controls can divert our managements attention from other matters that are important to our business.We may not b
317、e able to conclude onan ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not beable to issue an unqualified report if we conclude that our internal controls over financial reporting
318、 are not effective.If either we are unable to conclude that we have effectiveinternal controls over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report as required by Section 404,investors could lose confidence in our reported f
319、inancial information and our company,which could result in a decline in the market price of our common stock,and cause us to failto meet our reporting obligations in the future,which in turn could impact our ability to raise additional financing if needed in the future.Increasing costs of being publ
320、icly owned are likely to impact our future consolidated financial position and results of operations.In connection with the SarbanesOxley Act of 2002,we are subject to rules requiring our management to report on the effectiveness of our internal control over financial reporting.If we fail to have ef
321、fective internalcontrols and procedures for financial reporting in place,we could be unable to provide timely and reliable financial information which could,in turn,have an adverse effect on ourbusiness,results of operations,financial condition and cash flows.Significant regulatory changes,including
322、 the SarbanesOxley Act and rules and regulations promulgated as a result of the SarbanesOxley Act,have increased,and inthe future,are likely to further increase general and administrative costs.In order to comply with the SarbanesOxley Act of 2002,the listing standards of the NYSE exchange,andrules
323、implemented by the SEC,we have had to hire additional personnel and utilize additional outside legal,accounting and advisory services,and may continue to require suchadditional resources.Moreover,in the rapidly changing regulatory environment in which we operate,there is significant uncertainty as t
324、o what will be required to comply withmany of the regulations.As a result,we may be required to spend substantially more than we currently estimate,and may need to divert resources from other activities,as wedevelop our compliance plans.Provision for losses in our financial statements may not be ade
325、quate.Loss provisions in our financial statements for selfinsured programs are made on anundiscounted basis in the relevant period.These provisions are based on internal and external evaluations of the merits of individual claims,analysis of claims history andindependent actuarially determined estim
326、ates.Our management reviews the methods of determining these estimates and establishing the resulting accrued liabilities frequently,with any material adjustments resulting from being reflected in current earnings.Although we believe that our provisions for selfinsured losses in our financial statem
327、ents areadequate,the ultimate liability may be in excess of the amounts recorded.In the event the provisions for losses reflected in our financial statements are inadequate,our financialcondition and results of operations may be materially affected.Implementation of new information technology could
328、cause business interruptions and negatively affect our profitability and cash flows.We continue to refine andimplement our information technology to improve customer service,enhance operating efficiencies and provide more effective management of business operations.Implementationof information techn
329、ology carries risks such as cost overruns,project delays and business interruptions and delays.If we experience a material business interruption as a result ofthe implementation of our existing or future information technology infrastructure or are unable to obtain the projected benefits of this new
330、 infrastructure,it could adversely affectus and could have a material adverse effect on our business,results of operations,financial condition and cash flows.We depend on the proper function and availability of our information systems.We are dependent on the proper function and availability of our i
331、nformation systems.Though we have taken steps to protect the safety and security of our information systems and the data maintained within those systems,there can be no assurance that our safetyand security measures and disaster recovery plan will prevent damage or interruption of our systems and op
332、erations,and we may be vulnerable to losses associated with theimproper functioning,security breach or unavailability of our information systems.Failure to maintain proper function and availability of our information systems could have amaterial adverse effect on our business,financial position,resu
333、lts of operations and liquidity.19Table of Contents In addition,certain software supporting our business and information systems are licensed to us by independent software developers.Our inability or the inability ofthese developers,to continue to maintain and upgrade our information systems and software could disrupt or reduce the efficiency of our operations.In addition,costs andpotential proble
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