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 10–K. These risk factors should be considered in connection with evaluating the forward–looking statements contained in this Annual Report on Form 10–K, because these factors could cause the actual results and conditions to differ materially from those projected in forward–looking statements. The risks described below are not the only risks facing us. Additional risks and uncertainties 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 following risks could materially adversely affect our business, financial condition or results of operations and cash flows.
Risks Relating to Our Operations
We depend on reimbursement from Medicare, Medicaid and other third–party payors, and reimbursement rates from such payors may be reduced. We derive a substantial portion of our revenue from third–party payors, including the Medicare and Medicaid programs. Third–party payor programs are highly regulated and are subject to frequent and substantial changes. Changes in the reimbursement rate or methods of payment from third–party payors, including the Medicare and Medicaid programs, or the implementation 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 operating margins. For example, the Budget Control Act of 2011 requires automatic spending reductions to reduce the federal deficit, imposing Medicare spending reductions of up to 2% per fiscal year, with a uniform percentage across all Medicare programs. CMS began imposing a 2% reduction on Medicare claims in 2013, with temporary suspensions and 1% cuts in 2020 – 2022. These reductions have been extended through 2030.
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Net revenue realizable under third–party payor agreements can change after examination and retroactive adjustment by payors during the claims settlement processes or as a result of post–payment audits. Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable because additional 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 inpatient cap limits 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 receive based on an annual per-beneficiary cap amount and the number of Medicare patients served. If payments received by any one of our hospice provider numbers exceeds the inpatient 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 available for the services provided by us. Further limits on the scope of services reimbursed and 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 refinements to payment systems that result 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. Value-based purchasing programs emphasize quality and efficiency of services, rather than volume of services. For example, CMS reimburses SNF providers using the PDPM, a payment methodology that classifies patients into payment groups based on clinical factors 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 full reimbursement. Failure to report quality data or poor performance may negatively impact the amount of reimbursement received. CMS publishes quality measure data online through its Care Compare website, to allow the public to search and compare data for Medicare-certified providers.
Under the SNF Value-Based Purchasing Program, CMS reduces SNF Medicare payments by 2 percentage points and redistributes the majority of these funds as incentive payments 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 model, home health agencies will receive increases or decreases to their Medicare fee-for-service payments of up to 5%, based on performance against specific quality measures relative to the performance of other providers. Data collected in each performance year will impact Medicare payments two years later. Calendar year 2023 was the first performance year under the expanded HHVBP Model.
Other initiatives aimed at improving the cost of care include alternative payment models, such as ACOs and bundled payment arrangements. Medicare and many commercial third-party payors are implementing ACO models, in which groups of providers share in the benefit and risk of providing care to an assigned group of individuals at a lower cost. In addition, CMS is implementing programs to bundle acute care and post-acute care reimbursement to hold providers accountable for costs across a broader continuum 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-based care and drive broader system transformation. By 2030, the CMS Innovation Center aims to have all fee-for-service Medicare beneficiaries and the vast majority of Medicaid beneficiaries in an accountable care relationship with providers who are responsible for quality and total medical costs. The CMS Innovation Center signaled its intent to streamline its payment models and to increase provider participation through implementation of 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 and commercial health plans. It is unclear whether alternative payment models will successfully coordinate care and reduce 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 standards under any applicable value-based purchasing program, perform at a level below the outcomes demonstrated by our competitors, or otherwise fail to effectively provide or coordinate the efficient delivery of quality health care services, our reputation in the industry may be negatively impacted, we may receive reduced reimbursement amounts, and we may owe repayments to payors, causing our revenues to decline. Failure to respond successfully to value-based purchasing trends could negatively impact our business, results of operations and/or financial condition.
By undertaking to provide management services, advisory services, and/or financial services to other entities, we become at least partially responsible for meeting the regulatory requirements of those entities.We provide management and/or financial services to skilled nursing facilities, assisting living facilities and independent living facilities owned by third parties. The "Risk Factors" contained herein as applying 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 to those entities. Any adverse determination in any legal proceeding regarding such claims could have a material adverse effect on our business, our results of operation, our financial condition and cash flows.
We provide management services to skilled nursing facilities and other healthcare facilities under termswhereby the payments for our services are subject to subordination to other expenditures of the healthcare facility. Furthermore, there are certain third parties with whom we have contracted to provide services and which we have determined, based on insufficient historical collections and the lack of expected future collections, that the service revenue realization is uncertain. We may, therefore, make expenditures related to the provision of services for which we are not paid.
The status of our lease with National Health Investors, Inc. creates uncertainties and risks to our future operations. A significant portion of our skilled nursing and independent living facilities are subject to a long-term Master Agreement to Lease with National Health Investors, Inc. (“NHI”), which we refer to as the Master Lease. On July 29, 2025, NHI notified us of alleged non-compliance with certain non-monetary provisions of the Master Lease. On September 8, 2025, NHI formally alleged that the tenant under the lease, our wholly owned subsidiary NHC/OP, L.P., is in default as a result of alleged non-compliance with four non-monetary provisions, and indicated that failure to cure the alleged defaults within the applicable cure period would constitute an “Event of Default,” entitling NHI to pursue any remedies available under the agreement, including termination. We dispute that any default has occurred and we continue to communicate with NHI to resolve these matters. For a further discussion of our response to NHI’s allegations, please see Note 6 - Long-Term Leases to Interim Condensed Consolidated Financial Statements included in this Form 10-Q.
In October 2025, we provided NHI with a notice of our intent to exercise our right to extend the Master Lease for an additional five-year term beginning January 1, 2027. Under the Master Lease, the base rent for any renewal term is to be the fair rental value of the leased property as negotiated between the parties, without regard to improvements we made voluntarily at our expense. There is no assurance, however, that we will reach agreement with NHI on the base rent or other renewal terms. Further, if NHI asserts that an “Event of Default” has occurred or raises other objections to our extension notice, NHI may seek to terminate our occupancy of the leased properties.
Failure to resolve the current disputes with NHI or a failure to secure renewal of the Master Lease on acceptable terms could result in the loss of our right to occupy and operate some or all of the affected facilities, or subject us to damages, acceleration of rent, or other remedies in favor of NHI. Even if a default is ultimately determined not to have occurred, the process of resolving such disputes may result in significant legal and other expenses and could distract management from other priorities. The loss of these facilities or an increase in lease-related expenses could have a material adverse effect on our business, future results of operations, cash flows, financial condition, and liquidity.
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The cost to replace or retain qualified nurses, health care professionals and other key personnel may adversely affect our financial performance, and we may not be able to comply with certain states’ staffing requirements. We could experience significant increases in our operating costs due to shortages in qualified nurses, health care professionals and other key personnel. The market for these key personnel is highly competitive. We, like other health care providers, have experienced difficulties in attracting and retaining qualified personnel, especially facility administrators, nurses, certified nurses' aides and other important health care providers. There is currently a shortage of nurses, and trends indicate this shortage will continue or worsen in the future. The difficulty our skilled nursing facilities are experiencing in hiring and retaining qualified personnel has increased 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 retain qualified health care 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, our ability to conduct our business operations effectively could be harmed.
Certain states in which we operate skilled nursing facilities have adopted minimum staffing standards and additional states may also establish similar requirements in the future. Our ability to satisfy these requirements will depend upon our ability to attract and retain qualified nurses, certified nurses' assistants, and other staff. Failure to comply with these requirements may result in the imposition of fines or other sanctions. If states do not appropriate sufficient additional funds (through Medicaid program appropriations or otherwise) to pay for any additional operating costs resulting from minimum staffing requirements, 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 relationship between staffing levels and measures of nursing home quality. CMS continues to increase its quality measure thresholds, which is regularly increased every six months, making it more difficult to achieve upward and five-star ratings. CMS places a strong emphasis on registered nurse (“RN”) staffing. CMS posts information on nursing home staffing 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 Star Quality Rating System.
Although we currently have no collective bargaining agreements with unions at our facilities, there is no assurance this will continue to be the case. If any of our facilities enter into collective bargaining agreements with unions, we could experience or incur additional administrative expenses associated with union representation of our employees.
Our senior management team has extensive experience in the healthcare industry. We believe they have been instrumental in guiding our business, instituting valuable performance and quality monitoring, and driving innovation. Accordingly, our future performance is substantially dependent upon the continued services of our senior management team. The loss of the services of any of these persons could have a material adverse effect upon us.
Federal minimum staffing mandates may adversely affect our labor costs, ability to maintain desired levels of patient census and profitability. In April 2024, CMS issued the Staffing Rule, establishing minimum staffing standards for SNFs. The Staffing Rule contains three primary staffing requirements which would be phased in over the next several years. Implementation of the Staffing Rule was impaired by the passage of the One Big Beautiful Bill Act (“OBBB”) on July 4, 2025, which prohibited HHS from implementing, administering, or enforcing the Staffing Rule until October 1, 2034. Future developments may significantly alter the implementation of the Staffing Rule.
Disasters and similar events, which may increase as a result of climate change, may seriously harm our business.Natural and man–made disasters and similar events, 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 dependent 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 employees to reach our facilities were interrupted in any material respect due 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 and would involve risks, including potentially fatal risks, for the patients. The impact of disasters and similar events is inherently uncertain. Such events could harm our patients and employees, severely damage or destroy one or more of our facilities, harm our business, reputation and financial performance, or otherwise cause our business to suffer in ways that 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 in physical damage to or a decrease in demand for our facilities located in these areas or affected by these conditions. In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our facilities without a corresponding increase in revenue. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable. Should the impact of climate change be material in nature, including destruction of our facilities, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected.
Future acquisitions or new developments may be difficult to complete, use significant resources, or be unsuccessful and could expose us to unforeseen liabilities.We may selectively pursue acquisitions or new developments in our target markets. Acquisitions and new 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 could have a material adverse effect on our financial condition and results of operations. Acquisitions also involve numerous other risks, including difficulties integrating acquired operations, personnel and information systems, diversion of management's time from existing operations, potential losses of key employees or customers of acquired companies, assumptions of significant liabilities, exposure to unforeseen liabilities of acquired companies and increases in our indebtedness.
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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 covenants that limit 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 facilities that would be suitable acquisition candidates 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 regulation known as 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 agency either enrolled in Medicare or underwent a change in majority ownership fewer than 36 months prior to the acquisition, subject to certain exceptions. Instead, the buyer must enroll the 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 may cause significant Medicare billing delays for purchases of home health agencies that are subject to the rule. In addition, our ability to expand operations in a state depends on our ability 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 any required 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 plant and equipment.As of December 31, 2025, we leased or owned 72 skilled nursing facilities, 24 assisted living facilities, three behavioral health hospitals, and eight independent living facilities. Our ability to maintain and enhance our physical plant and equipment in a suitable condition to meet regulatory standards, operate efficiently and remain competitive in our 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 operate centers that are not as old as our centers, or may appear more modernized than our centers, and therefore may be more attractive to prospective customers. In addition, the cost to replace our existing centers through acquisition or construction is substantially higher than the carrying value of our centers. We are undertaking a process to allocate more aggressive capital spending within our owned and leased facilities in 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 resources to the maintenance, upgrade and modernization of our physical plant and equipment, our business, results of operations, financial condition and cash flow could be adversely impacted.
We are defendants in significant legal actions, which are commonplace in our industry, and which could subject us to increased operating costs and substantial uninsured liabilities, which would materially and adversely affect our liquidity and financial condition. As is typical in the health care industry, we are subject to claims that our services have resulted in resident injury or other adverse effects. We, like our industry peers, have experienced an increasing trend in the frequency and severity of professional liability and workers’ compensation claims and litigation asserted against us. In some states in which we have significant operations, insurance coverage for the risk of punitive damages arising from professional liability claims and/or litigation may not, in certain cases, be available due to state law prohibitions or limitations of availability. We cannot 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 have been, and will continue to be, governmental investigations of long–term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Insurance is not available to cover such losses. Any adverse determination in a legal proceeding or governmental investigation, 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 self–insured on all of these programs and as a result, 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 loss estimates on independent actuarial analyses using the information we have to date, the amount of the losses could exceed our estimates. In the event our actual liability exceeds our 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 all claims made against us. If we are unable to maintain our current insurance coverage, if judgments are obtained in excess of the coverage we maintain, if we are required to pay uninsured punitive damages, or if the number of claims settled within the self–insured retention currently in place significantly increases, we could be exposed to substantial additional liabilities. We cannot assure you that the claims we pay under our self–insurance programs will not exceed the reserves we have set aside to pay claims. The number of claims within the self–insured retention may increase.
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If we fail to compete effectively with other health care providers, our revenues and profitability 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 with other nursing centers, health care providers, and senior living service providers that provide services similar to those we offer. Some of our competitors' facilities are located in newer 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 are operated by not-for-profit, non-taxpaying or governmental agencies that can finance capital expenditures on a tax-exempt basis and that receive funds and charitable contributions unavailable to us. Consolidations of not-for-profit entities may intensify this competitive pressure. Many competing general acute care hospitals are larger and more established than 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 physician alignment strategies, such as employing physicians, acquiring physician practice groups and participating in ACOs or other clinical integration models. Other industry participants, such as large employer groups and their affiliates, may intensify competitive pressure and affect the industry in ways 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 comprehensiveness of our treatment 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 care providers for customer referrals from hospitals and other providers. As a result, a failure to compete effectively with respect to referrals may have an adverse impact on our business. 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 profitability.The sources and amounts of our patient revenues will be determined 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 private pay, Medicare and Medicaid will significantly affect our profitability. Particularly, any significant increase in our Medicaid population could have a material adverse effect on our financial position, results of operations and cash flow, especially if states operating these programs continue to limit, or more aggressively seek limits on, reimbursement rates or service levels.
Private third–party payors continue to try to reduce health care costs.Private third–party payors are continuing their efforts to control health care costs through direct contracts with health care providers, increased utilization 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 of private payors to control healthcare costs may be enhanced by the increasing consolidation of insurance companies and the vertical integration of health insurers with healthcare providers. We could be adversely affected by the continuing efforts of private third–party payors to limit the amount of reimbursement we receive for health care services. We cannot assure you that reimbursement under private third–party payor programs will remain at levels comparable to present levels or will be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. Future changes in the reimbursement rates or methods of private or third–party payors or the implementation of other 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 to maintain operating margins through 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. Our ability to contract with payors depends on our quality of service and reputation, as well as other factors of which we may have little or no control, such as state appropriations and changes in provider eligibility requirements.
The effects related to any potential future pandemic, epidemic, or infectious disease outbreak could adversely impact our business and future results of operations and financial condition. Pandemics, epidemics, or outbreaks of contagious illnesses and similar events may cause harm to us, our partners (employees), our patents, our vendors and supply chain partners, and financial institutions, which could have a material adverse effect on our results of operations, financial condition and cash flows. The impacts may include, but would not be limited to:
Any such crisis could diminish public trust in healthcare providers, particularly those that are treating or have treated patients affected by contagious diseases. Patient volumes may decline or volumes of uninsured patients may increase, depending on the economic circumstances surrounding the pandemic, epidemic or outbreak.
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 substantial indebtedness in the future. If additional debt is added, the related risks that we now face could intensify.
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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 revenue and 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 are in compliance with regulations governing the operation of, and reimbursement for, skilled nursing facilities and nursing homes, 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 with government programs, conduct of operations, ownership of facilities, construction 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 services provided, minimum direct care spending ratios, services and prices for services, and pharmaceuticals and controlled substances. Various laws, including federal and state anti–kickback and anti–fraud statutes, prohibit certain business practices and relationships that might affect the provision and cost of health care services reimbursable under federal and/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 federal governmental programs or fee-splitting arrangements between health care providers that are designed to induce the referral of patients to a provider for medical products and services. Furthermore, many states prohibit business corporations from providing or holding themselves out as a provider of medical care.
In addition, the Stark Law broadly defines the scope of prohibited physician referrals under federal health care programs to providers with which they have ownership or other 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 remuneration 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 False Claims Act. These lawsuits can involve significant monetary awards to private plaintiffs who successfully bring these suits. When a private party brings a qui tam action under the False Claims Act, it files the complaint with the court under seal, and the defendant will generally not be aware of the lawsuit until the government makes a determination whether it will 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 with responsibility for enforcing the provisions of these laws and regulations will not assert that one or more of our arrangements are in violation of the provisions of such laws and regulations.
The regulatory environment surrounding the post–acute and long–term care industry has intensified, particularly for larger for–profit, multi–facility providers like us. The federal government has imposed extensive enforcement policies resulting in a significant increase in the number of inspections, citations of regulatory deficiencies and other regulatory sanctions, including terminations from the Medicare and Medicaid programs, denials of payment for new Medicare and Medicaid admissions and civil monetary penalties.
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 regulations applicable to our business, we could have our licenses suspended or revoked, become ineligible to receive government program reimbursement, be required to refund amounts received 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 changes to our operations. Any of these sanctions could have a material adverse effect on our operations and financial condition. Furthermore, should we lose licenses or certifications for many 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 outstanding indebtedness.
We have established policies and procedures that we believe are sufficient to ensure that we will operate in substantial compliance with these anti–fraud and abuse requirements. From time to time, we may seek guidance as to the interpretation of these laws; however, there can be no assurance that such laws will ultimately be interpreted in a manner consistent with our practices. In addition, we could be forced to expend considerable resources responding to an investigation or other enforcement action under these laws or regulations. While we believe that our business practices are consistent with Medicare and Medicaid criteria, those criteria are often vague and subject to change and interpretation. We are unable to predict the future course of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations, or the intensity of federal and state enforcement actions. Aggressive anti–fraud actions have had and could have an adverse effect on our financial position, results of operations and cash flows. See Item 1, "Business – Government Regulation".
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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 number of laws intended to result in significant changes to the healthcare industry, including the ACA. The ACA affects how healthcare services are delivered and reimbursed through the expansion of public and private health insurance coverage, reduction of growth in Medicare and Medicaid spending, and the establishment and expansion of programs that tie reimbursement to quality and integration. The ACA has been subject to legislative and regulatory changes and court challenges. It is possible that there may be continued changes to the ACA, its implementation or its interpretation. Changes by Congress or government agencies could eliminate or alter provisions beneficial to us, while leaving in place provisions reducing our reimbursement or otherwise negatively 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 on providers as well as other healthcare industry participants. Some members of Congress have proposed expanding government-funded coverage, including proposals to expand coverage of federally-funded insurance programs as an alternative to private insurance or to establish a single payor system (such reforms are often referred to as “Medicare for All”), and some states have implemented 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, including by expanding the scope of waivers under which states may implement Medicaid expansion provisions, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards. Other industry participants, such as private payors, may also introduce financial or delivery system reforms. We are unable to predict 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 health information. 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 privacy and security regulations that extensively regulate the use and disclosure of individually identifiable health information (known as Protected Health Information, or PHI) and require covered entities, including healthcare providers and health plans, and vendors known as "business associates," to implement administrative, physical and technical safeguards to protect the security of PHI. Covered entities must report breaches of unsecured PHI without unreasonable delay to affected individuals, HHS and, in the case of larger breaches, the media. The privacy, security and breath notification regulations have imposed, and will continue to impose, significant compliance costs on our operations.
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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 may impose additional obligations or penalties. For example, additional federal and state obligations may apply to behavioral, addictive disorder and other types of sensitive information. Further, various state laws and regulations may require us to notify affected individuals in the event of a data breach involving individually identifiable 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 to data breaches. To the extent we fail to comply with one or more federal and/or state privacy and security requirements or if we are found to be responsible for the non-compliance of 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 on our business, financial position, results of operations and 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 of patient health information. For example, most health care providers and certain other entities are subject to information blocking restrictions pursuant to the 21st Century Cures Act that 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 reasonable and necessary activity.
We are subject to employment-related laws and regulations which could increase our cost of doing business and subject us to significant back pay awards, fines and lawsuits. 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 Standards Act, 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 the Civil Rights Act, the Employee Retirement Income Security Act, the Americans with Disabilities Act, the National Labor Relations Act, regulations of the Equal Employment Opportunity 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 laws enacted by the federal and state governments that govern these and other employment-related matters. 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 significant back pay awards, fines and lawsuits. In addition, federal proposals to introduce a system of mandated health insurance and flexible work time and other similar initiatives could, if implemented, adversely affect our operations. Our failure to comply with federal and state employment-related laws and regulations could have a material adverse effect on our business, 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 of air and water quality control, medical and low–level radioactive waste management and disposal, asbestos management, response to mold and lead–based paint in our facilities and employee 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 substances 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 contaminants. 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 environmental contamination or noncompliance, particularly where the timing or cost of making such determinations is not deemed cost effective. These activities, as well as the possible presence 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; may result in legal liability, damages, injunctions or fines; may result in investigations, administrative proceedings, penalties or other governmental agency actions; and may not be covered 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 will not encounter environmental 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 on income taxes and estimated income liabilities. Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment. We believe we have adequate provisions for unrecognized tax benefits related to uncertain tax positions. Although we believe we have accurately estimated our tax liabilities, uncertainty of interpretation by various tax authorities and the possibility that there are issues that have not been recognized by management could result in additional tax liability. We believe that our liabilities reflect 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 are uncertainties and ambiguities in the 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 positions on audit that differ from our interpretations and assumptions. Although we believe our tax estimates are reasonable, if a taxing authority disagrees with the positions we have taken, 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 with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, change in tax laws and regulations, changes in our interpretations of tax laws, including the 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 such additional amounts upon final adjudication of any disputes will not have a material impact on our results of operations and financial position.
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Risks Related to Our Structure and Public Company Compliance
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes–Oxley Act could result in a restatement 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 our consolidated financial statements in accordance with the requirements of U.S. GAAP. Effective internal controls are necessary for us to provide reliable financial reports to help mitigate 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 in order to satisfy the requirements of Section 404 of the Sarbanes–Oxley Act of 2002, or Section 404, which requires annual management assessments of the effectiveness of our internal controls over financial reporting.
Testing and maintaining internal controls can divert our management's attention from other matters that are important to our business. We may not be able to conclude on an 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 be able to issue an unqualified report if we conclude that our internal controls over financial reporting are not effective. If either we are unable to conclude that we have effective internal 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 financial information and our company, which could result in a decline in the market price of our common stock, and cause us to fail to 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 publicly owned are likely to impact our future consolidated financial position and results of operations.In connection with the Sarbanes–Oxley 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 effective internal controls 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 our business, results of operations, financial condition and cash flows.
Significant regulatory changes, including the Sarbanes–Oxley Act and rules and regulations promulgated as a result of the Sarbanes–Oxley Act, have increased, and in the future, are likely to further increase general and administrative costs. In order to comply with the Sarbanes–Oxley Act of 2002, the listing standards of the NYSE exchange, and rules 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 such additional resources. Moreover, in the rapidly changing regulatory environment in which we operate, there is significant uncertainty as to what will be required to comply with many 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 we develop our compliance plans.
Provision for losses in our financial statements may not be adequate.Loss provisions in our financial statements for self–insured programs are made on an undiscounted basis in the relevant period. These provisions are based on internal and external evaluations of the merits of individual claims, analysis of claims history and independent actuarially determined estimates. 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 self–insured losses in our financial statements are adequate, 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 financial condition and results of operations may be materially affected.
Implementation of new information technology could cause business interruptions and negatively affect our profitability and cash flows.We continue to refine and implement our information technology to improve customer service, enhance operating efficiencies and provide more effective management of business operations. Implementation of information technology carries risks such as cost overruns, project delays and business interruptions and delays. If we experience a material business interruption as a result of the implementation of our existing or future information technology infrastructure or are unable to obtain the projected benefits of this new infrastructure, it could adversely affect us 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 information 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 safety and security measures and disaster recovery plan will prevent damage or interruption of our systems and operations, and we may be vulnerable to losses associated with the improper functioning, security breach or unavailability of our information systems. Failure to maintain proper function and availability of our information systems could have a material adverse effect on our business, financial position, results of operations and liquidity.
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In addition, certain software supporting our business and information systems are licensed to us by independent software developers. Our inability or the inability of these developers, to continue to maintain and upgrade our information systems and software could disrupt or reduce the efficiency of our operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems also could disrupt or reduce the efficiency of our operations and could have a material adverse effect on our business, financial position, results of operations and liquidity.
Cybersecurity risks could harm our ability to operate effectively. Cybersecurity refers to the combination of technologies, processes and procedures established to protect information technology systems and data from unauthorized access, attack, or damage. We rely on our information systems to provide security for processing, transmission and storage of confidential patient, resident, employee, other consumer information, such as personally identifiable information, including information relating to health protected by HIPAA. Although we have taken steps to protect the security of our information systems, medical devices that store sensitive data, and the data maintained in those systems and devices, it is possible that our safety and security measures will not prevent improper functioning or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. We may be at increased risk because we outsource certain services or functions to, or have systems that interface with, third parties. Some of these third parties may store or have access to our data and may not have effective controls, processes, or practices to protect our information from attack, damage, or unauthorized access. A breach or attack, including those caused by updates and other releases, affecting any of these third parties could harm our business.
If personally identifiable information of our patients or others is improperly accessed, tampered with or distributed, we may incur significant costs to remediate possible injury to the affected patients, and we may be subject to sanctions and civil or criminal penalties if we are found to be in violation of the privacy or security rules under HIPAA or other similar federal or state laws protecting confidential personally identifiable information.
Security breaches, including physical or electronic break–ins, computer viruses, attacks by hackers and similar breaches can create system disruptions or shutdowns or the unauthorized disclosure of confidential information. Additionally, healthcare businesses are increasingly targets of cyberattacks, whereby hackers disrupt business operations or obtain protected health information, often demanding large ransoms. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities. The occurrence of any of these events could result in harm to patients; business interruptions or delays; the loss, misappropriation, corruption, or unauthorized access of data; litigation and potential liability under privacy, security and consumer protection laws or other applicable laws; reputational damage; or federal and state governmental inquiries. Any failure to maintain proper functionality and security of our information systems could have a material adverse effect on our business, financial condition, and results of operations.
We may not be able to meet all our capital needs.We cannot assure you that our business will generate cash flow from operations that anticipated revenue growth and improvement of operating efficiencies will be realized or that future borrowings will be available to us in an amount sufficient to enable us to service any future indebtedness or to fund our other liquidity needs. We may need to incur indebtedness, sell assets, or make certain discretionary capital expenditures.
The performances of our fixed–income and our equity investment portfolios are subject to a variety of investment risks.Our investment portfolios are comprised principally of fixed–income securities and common equities. Our fixed–income portfolio is actively managed by an investment group and includes short–term investments and fixed–maturity securities. The performances of our fixed–income and our equity portfolios are subject to a number of risks, including:
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In addition, the success of our investment strategies and asset allocations in the fixed–income portfolio may vary depending on the market environment. The fixed–income portfolio's performance also may be adversely impacted if, among other factors: there is a lack of transparency regarding the underlying businesses of the issuers of the securities that we purchase; credit ratings assigned to such securities by nationally recognized credit rating agencies are based on incomplete information or prove unwarranted; or our risk mitigation strategies are ineffective for the applicable market conditions.
The common equity portfolio is subject to general movements in the values of equity markets and to the changes in the prices of the securities we hold. Equity markets, sectors, industries, and individual securities may be subject to high volatility and to long periods of depressed or declining valuations.
If the fixed–income or equity portfolios, or both, were to suffer a decrease in value due to market, sector, or issuer–specific conditions to a substantial degree, our liquidity, financial position, and financial results could be materially adversely affected.
Our stock price is volatile and fluctuations in our operating results, quarterly earnings and other factors may result in declines in the price of our common stock. Equity markets are prone to, and in the last few years have experienced, extreme price and volume fluctuations. Volatility over the past few years has had a significant impact on the market price of securities issued by many companies, including us and other companies in the healthcare industry. If we are unable to operate our businesses as profitably as we have in the past or as our stockholders expect us to in the future, the market price of our common stock will likely decline as stockholders could sell shares of our common stock when it becomes apparent that the market expectations may not be realized. In addition to our operating results, many economic and other factors beyond our control could have an adverse effect on the price of our common stock including:
● general economic conditions;
● developments generally affecting the healthcare industry;
● litigation and governmental investigations;
● investor perceptions of us and our business;
● actions by institutional or other large stockholders;
● quarterly variations in operating results;
● changes in financial estimates and recommendations by securities analysts;
● sales of stock by insiders;
● natural disasters, terrorist attacks and pandemics; and
● additions or departures of key personnel.
We may not be able to pay or maintain dividends and the failure to do so would adversely affect our stock price. We currently pay a quarterly dividend on our common stock and our Board intends to continue to pay a quarterly dividend. However, our ability to pay and maintain cash dividends is based on many factors, including our financial condition, funds from operations, the level of our capital expenditures and future business prospects, our ability to make and finance acquisitions, anticipated operating cost levels, the level of demand for our beds, the rates we charge and actual results that may vary substantially from estimates. Some of the factors are beyond our control and a change in any such factor could affect our ability to pay or maintain dividends. The failure to pay or maintain dividends could adversely affect our stock price.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
The Company’s Board of Directors is committed to both safeguarding against cybersecurity threats and complying with the SEC Cybersecurity regulations adopted on July 26, 2023. The Board receives an annual cybersecurity update from the Chief Information Officer (CIO) and Chief Information Security Officer (CISO) at one of the Board meetings held throughout the year. Accordingly, they received their customary detailed briefing from the CIO and CISO at the August 7, 2025 meeting.
The CIO provides relevant information on cybersecurity threats and risks to the Certification Committee on a quarterly basis. This meeting is chaired by a representative of the Audit Committee and attended by the Chairman of the Audit Committee. The Chairman of the Audit Committee will then escalate any significant matters to the full Audit Committee. If necessary, the Audit Committee can further elevate these matters to the full Board of Directors.
The Company has implemented processes and continues to look at improved ways to identify, assess, and manage material risks from cybersecurity threats. Additionally, it has established procedures to evaluate any material effects, or reasonably likely material effects, of risks from cybersecurity threats and past cybersecurity incidents. The Company also has processes in place to assess and determine the necessity of any material disclosures required on Form 8-K.
The Company’s CIO brings over 40 years of experience in information technology and cybersecurity within the healthcare sector. The CISO has more than 25 years of expertise in technology and cybersecurity and has served as the Company’s CISO for 7 years. The Company has an Incident Response Planning Committee that convenes quarterly to address, identify, and manage any significant cybersecurity threats. Additionally, the Company has a crisis team, comprising the Compliance Officer, General Counsel, Chief Financial Officer, Human Resources Officer, Facilities Management Administrator, and Network Systems Administrator, which is activated if an event poses a significant risk to the Company.
The Company and the Board of Directors are committed to remaining updated on evolving cybersecurity regulations and best practices, as well as the development and amendment of processes to meet these changing demands.
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ITEM 2. PROPERTIES
Skilled Nursing Facilities
State City Center Name Affiliation Licensed Beds
Alabama Anniston NHC HealthCare, Anniston Leased(1) 151
Moulton NHC HealthCare, Moulton Leased(1) 136
Georgia Fort Oglethorpe NHC HealthCare, Fort Oglethorpe Owned 135
Rossville NHC HealthCare, Rossville Owned 112
Kentucky Glasgow NHC HealthCare, Glasgow Leased(1) 194
Missouri Desloge NHC HealthCare, Desloge Leased(1) 120
Joplin NHC HealthCare, Joplin Leased(1) 124
Kennett NHC HealthCare, Kennett Leased(1) 170
Macon Macon Health Care Center Owned 120
Osage Beach Osage Beach Rehabilitation and Health Care Center Owned 94
St. Charles NHC HealthCare, St. Charles Leased(1) 120
St. Louis NHC HealthCare, Maryland Heights Leased(1) 220
Springfield Springfield Rehabilitation and Health Care Center Owned 146
West Plains NHC HealthCare, West Plains Owned 114
North Carolina Burlington White Oak of Burlington Owned 160
Charlotte White Oak of Charlotte Owned 180
Kings Mountain White Oak of Kings Mountain Owned 154
Shelby White Oak of Shelby Owned 160
Tryon White Oak of Tryon Owned 70
Waxhaw White Oak of Waxhaw Leased 100
South Carolina Anderson NHC HealthCare, Anderson Leased(1) 290
Bluffton NHC HealthCare, Bluffton Owned 120
Charleston NHC HealthCare, Charleston Owned 132
Clinton NHC HealthCare, Clinton Owned 131
Columbia NHC HealthCare, Parklane Owned 180
Columbia White Oak of Columbia Owned 120
Greenwood NHC HealthCare, Greenwood Leased(1) 152
Greenville NHC HealthCare, Greenville Owned 176
Lancaster White Oak of Lancaster Owned 132
Laurens NHC HealthCare, Laurens Leased(1) 176
Lexington NHC HealthCare, Lexington Owned 170
Mauldin NHC HealthCare, Mauldin Owned 180
Murrells Inlet NHC HealthCare, Garden City Owned 148
Newberry White Oak of Newberry Owned 146
North Augusta NHC HealthCare, North Augusta Owned 192
North Charleston White Oak of Charleston Owned 176
Rock Hill White Oak of Rock Hill Owned 141
Spartanburg White Oak of North Grove Owned 132
Spartanburg White Oak of Spartanburg Owned 60
Spartanburg White Oak Estates Owned 88
Sumter NHC HealthCare, Sumter Managed 138
York White Oak of York Owned 109
Tennessee Athens NHC HealthCare, Athens Leased(1) 86
Chattanooga NHC HealthCare, Chattanooga Leased(1) 200
Columbia NHC HealthCare, Columbia Owned 106
Columbia NHC-Maury Regional Transitional Care Center Owned 112
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Cookeville NHC HealthCare, Cookeville Managed 104
Dickson NHC HealthCare, Dickson Leased(1) 191
Dunlap NHC HealthCare, Sequatchie Leased(1) 110
Farragut NHC HealthCare, Farragut Owned 106
Franklin NHC Place, Cool Springs Owned 180
Franklin NHC HealthCare, Franklin Leased(1) 80
Gallatin NHC Place, Sumner Owned 92
Hendersonville NHC HealthCare, Hendersonville Leased(1) 122
Johnson City NHC HealthCare, Johnson City Leased(1) 167
Kingsport NHC HealthCare, Kingsport Owned 90
Knoxville NHC HealthCare, Fort Sanders Owned 160
Knoxville Holston Health & Rehabilitation Center Owned 94
Knoxville NHC HealthCare, Knoxville Owned 115
Lawrenceburg NHC HealthCare, Lawrenceburg Managed 96
Lawrenceburg NHC HealthCare, Scott Leased(1) 60
Lewisburg NHC HealthCare, Lewisburg Leased(1) 100
Lewisburg NHC HealthCare, Oakwood Leased(1) 60
McMinnville NHC HealthCare, McMinnville Leased(1) 115
Milan NHC HealthCare, Milan Leased(1) 117
Murfreesboro AdamsPlace Owned 90
Murfreesboro NHC HealthCare, Murfreesboro Managed 181
Nashville Lakeshore, Heartland Owned 66
Nashville Lakeshore, The Meadows Managed 113
Nashville The Health Center of Richland Place Managed 107
Nashville NHC Place at The Trace Owned 90
Nashville West Meade Place Managed 120
Oak Ridge NHC HealthCare, Oak Ridge Managed 120
Pulaski NHC HealthCare, Pulaski Leased(1) 102
Smithville NHC HealthCare, Smithville Leased(1) 114
Somerville NHC HealthCare, Somerville Leased(1) 72
Sparta NHC HealthCare, Sparta Leased(1) 96
Springfield NHC HealthCare, Springfield Owned 107
Tullahoma NHC HealthCare, Tullahoma Owned 99
Virginia Bristol NHC HealthCare, Bristol Leased(1) 120
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Behavioral Health Hospitals
State City Center Name Affiliation Licensed Beds
Missouri Maryland Heights Maryland Heights Center for Behavioral Health Owned 20
Osage Beach Osage Beach Center for Cognitive Disorders Owned 18
Tennessee Knoxville Knoxville Center for Behavioral Medicine Owned(2) 64
Assisted Living Units
State City Center Name Affiliation Units
Alabama Anniston NHC Place/Anniston Owned 67
Kentucky Glasgow NHC HealthCare, Glasgow Leased(1) 12
Florida Merritt Island Sodalis Senior Living Merritt Island Owned 85
Stuart Sodalis Senior Living Stuart Owned 84
Vero Beach Sodalis Senior Living Vero Beach Owned 119
Missouri St. Charles Lake St. Charles Retirement Center Leased(1) 26
St. Peters Villages of St. Peters Memory Care Owned 60
North Carolina Tryon Benson Hall Assisted Living Owned 18
South Carolina Bluffton The Palmettos of Bluffton Owned 78
Charleston The Palmettos of Charleston Owned 60
Columbia The Palmettos of Parklane Owned 75
Greenville The Palmettos of Mauldin Owned 45
Murrells Inlet The Palmettos of Garden City Owned 80
Spartanburg White Oak Estates Assisted Living Owned 30
Tennessee Dickson NHC HealthCare, Dickson Leased(1) 20
Farragut NHC Place, Farragut Owned 84
Farragut NHC Place, Cavette Hill Owned 60
Franklin NHC Place, Cool Springs Owned 89
Gallatin NHC Place, Sumner Owned 80
Murfreesboro AdamsPlace Owned 106
Nashville Lakeshore Heartland Owned 9
Nashville Lakeshore, The Meadows Managed 10
Nashville Richland Place Managed 24
Nashville The Place at the Trace Owned 80
Smithville NHC HealthCare, Smithville Leased(1) 6
Somerville NHC HealthCare, Somerville Leased(1) 6
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Retirement Apartments
State City Retirement Apartments Affiliation Units
Missouri St. Charles Lake St. Charles Retirement Apts. Leased(1) 152
North Carolina Burlington Oak Creek Apartments Owned 54
Charlotte Sharon Village Apartments Owned 34
Tryon White Oak Village Apartments Owned 101
South Carolina Spartanburg White Oak Estates Apartments Owned 114
Tennessee Chattanooga Parkwood Retirement Apartments Leased(1) 30
Johnson City Colonial Hill Retirement Apartments Leased(1) 63
Murfreesboro AdamsPlace Owned 93
Nashville Richland Place Retirement Apts. Managed 136
Homecare Agencies
State City Homecare Agencies
Florida Chipley NHC HomeCare of Chipley
Crawfordville NHC HomeCare of Crawfordville
Merritt Island NHC HomeCare of Merritt Island
Panama City NHC HomeCare of Panama City
Port St. Joe NHC HomeCare of Port St. Joe
Quincy NHC HomeCare of Quincy
Tallahassee NHC HomeCare of Tallahassee
Vero Beach NHC HomeCare of Vero Beach
South Carolina Aiken NHC HomeCare of Aiken
Anderson NHC HomeCare of Anderson
Greenville NHC HomeCare of Greenville
Greenwood NHC HomeCare of Greenwood
Laurens NHC HomeCare of Laurens
Murrells Inlet NHC HomeCare of Murrells Inlet
Summerville NHC HomeCare of Low Country
West Columbia NHC HomeCare of Midlands
Tennessee Athens NHC HomeCare of Athens
Chattanooga NHC HomeCare of Chattanooga
Columbia NHC HomeCare of Columbia
Cookeville NHC HomeCare of Cookeville
Dickson NHC HomeCare of Dickson
Franklin NHC HomeCare of Franklin
Hendersonville NHC HomeCare of Hendersonville
Johnson City NHC HomeCare of Johnson City
Knoxville NHC HomeCare of Knoxville
Lawrenceburg NHC HomeCare of Lawrenceburg
Lewisburg NHC HomeCare of Lewisburg
McMinnville NHC HomeCare of McMinnville
Milan NHC HomeCare of Milan
Murfreesboro NHC HomeCare of Murfreesboro
Pulaski NHC HomeCare of Pulaski
Somerville NHC HomeCare of Somerville
Sparta NHC HomeCare of Sparta
Springfield NHC HomeCare of Springfield
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Hospice Agencies
State City Hospice Agencies
Georgia Rossville Caris Healthcare – Rossville
Missouri St. Louis Caris Healthcare – St. Louis
South Carolina Anderson Caris Healthcare – Anderson
Charleston Caris Healthcare – Charleston
Columbia Caris Healthcare – Columbia
Greenville Caris Healthcare – Greenville
Greenwood Caris Healthcare – Greenwood
Myrtle Beach Caris Healthcare – Myrtle Beach
Sumter Caris Healthcare – Sumter
Tennessee Athens Caris Healthcare – Athens
Chattanooga Caris Healthcare – Chattanooga
Columbia Caris Healthcare – Columbia
Cookeville Caris Healthcare – Cookeville
Clinton Caris Healthcare – Clinton
Crossville Caris Healthcare – Crossville
Dickson Caris Healthcare – Dickson
Greeneville Caris Healthcare – Greeneville
Johnson City Caris Healthcare – Johnson City
Knoxville Caris Healthcare – Knoxville
Lawrenceburg Caris Healthcare - Lawrenceburg
Lenoir City Caris Healthcare – Lenoir City
Milan Caris Healthcare – Milan
Morristown Caris Healthcare - Morristown
Murfreesboro Caris Healthcare – Murfreesboro
Nashville Caris Healthcare – Nashville
Sevierville Caris Healthcare – Sevierville
Somerville Caris Healthcare – Somerville
Springfield Caris Healthcare – Springfield
Tullahoma Caris Healthcare – Tullahoma
Virginia Big Stone Gap Caris Healthcare – Big Stone Gap
Bristol Caris Healthcare – Bristol
Cedar Bluff Caris Healthcare – Cedar Bluff
Wytheville Caris Healthcare - Wytheville
Healthcare Facilities Leased to Others
The following table includes certain information regarding healthcare facilities which are owned by us and leased to others:
Name of Facility Location No. of Beds
Skilled Nursing Facilities
Solaris HealthCare North Naples Naples, FL 60
Solaris HealthCare Coconut Creek Coconut Creek, FL 120
Solaris HealthCare Daytona Daytona Beach, FL 73
Solaris HealthCare Imperial Naples, FL 113
Solaris HealthCare Windermere Orlando, FL 120
Solaris HealthCare Charlotte Harbor Port Charlotte, FL 180
The Health Center at Standifer Place Chattanooga, TN 444
Solaris HealthCare Lake City Lake City, FL 120
Solaris HealthCare Pensacola Pensacola, FL 180
Assisted Living No. of Units
Standifer Place Assisted Living Chattanooga, TN 74
(1) Leased from NHI
(2) Knoxville Center for Behavioral Medicine is owned by separate limited liability companies. The Company owns 65% of the operations entity and owns 89% of the real estate entity.
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ITEM 3. LEGAL PROCEEDINGS
General and Professional Liability Insurance and Lawsuits
The senior care industry has experienced increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards.
As a result of the terms of our insurance policies and our use of a wholly-owned insurance company, we have retained significant self–insured risk with respect to general and professional liability. Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly-owned captive insurance company. We use independent actuaries to assist management in estimating our exposures for claims obligations (for both asserted and unasserted claims) related to exposures in excess of coverage limits, and we maintain reserves for these obligations. It is possible that claims against us could exceed our coverage limits and our reserves, which would have a material adverse effect on our financial position, results of operations and cash flows.
General Litigation
Civil Investigative Demand / Qui Tam Complaint
On or about May 21, 2024, Caris Healthcare, L.P. (“Caris”) received a Civil Investigative Demand (“CID”) from the U.S. Attorney’s Office for the Eastern District of Tennessee. The CID requested the production of certain medical records for patients at Caris’ Nashville office and other documents related to the billing for hospice services for the period of January 1, 2019, through the date of the CID. The Company cooperated with respect to the requests.
On June 23, 2025, a Notice of Election to Decline Intervention (the “Notice of Declination”) was filed by the United States of America, the State of Tennessee, the Commonwealth of Virginia, and the State of Georgia, in a case styled U.S. ex rel. Marshall v. Caris HealthCare, L.P., Case No. 3:23-CV-00330, in the U.S. District Court for the Eastern District of Tennessee (the “Qui Tam Case”). Subsequent to the Notice of Declination filing, an underlying qui tam complaint, originally filed on September 12, 2023, was unsealed. Following the Notice of Declination, the relators filed a Notice of Voluntary Dismissal on September 25, 2025, which concluded the matter.
Indemnities
From time to time, the Company enters into certain types of contracts that contingently require it to indemnify parties against third-party claims. These contracts primarily include (i) certain real estate leases, under which the Company may be required to indemnify property owners or prior facility operators for post-transfer liabilities and other claims arising from the Company’s use of the applicable premises, (ii) operations transfer agreements, in which the Company agrees to indemnify past operators of facilities against certain liabilities arising from the transfer of the operation and/or the operation thereof after the transfer to the Company or its subsidiary, (iii) certain lending agreements, under which the Company may be required to indemnify the lender against various claims and liabilities, (iv) certain agreements by and between the Company and/or its subsidiaries or affiliates, and (v) certain agreements with the Company officers, directors and others, under which the Company may be required to indemnify such persons for liabilities arising out of the nature of their relationship to the Company and/or its subsidiaries and affiliates. The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar amount. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Market Information
Our common stock is listed and traded on the NYSE-American exchange under the symbol “NHC.” On December 31, 2025, NHC had approximately 24,596 stockholders, comprised of approximately 1,896 stockholders of record and an additional 22,700 stockholders indicated by security position listings.
Dividend Policy
We do not have a formal dividend policy, but we currently intend to continue to pay regular quarterly dividends to the holders of our common stock. The Company has paid a common dividend since 2004, although there can be no assurances that our quarterly dividends will be declared, paid or increased in the future.
Stock Repurchase Programs
In 2025, the Company purchased 127,338 shares of its common stock for a total cost of $14,730,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.
Equity Compensation Plans
The following table sets forth information regarding our equity compensation plans:
(a) (b) (c)
Equity compensation plans not approved by security holders – – –
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The following graph and chart compare the cumulative total stockholder return for the period from January 1, 2021 through December 31, 2025 on an investment of $100 in (i) NHC’s common stock (“NHC”), (ii) the Russell 2000 Stock Index ("Russell 2000") and (iii) the Standard & Poor’s Health Care Index ("S&P Health Care Index"). Cumulative total stockholder return assumes the reinvestment of all dividends. Stock price performances shown in the graph are not necessarily indicative of future price performances.
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ITEM 6. [RESERVED]
Overview
National HealthCare Corporation, which we also refer to as NHC or the Company, is a leading provider of post–acute care and senior health care services. At December 31, 2025, we operate or manage 80 skilled nursing facilities with 10,329 1icensed beds, 26 assisted living facilities with 1,413 units, nine independent living facilities, three behavioral health hospitals, 34 homecare agencies, and 33 hospice agencies located in 9 states. In addition, we provide management services, accounting and financial services, and insurance services to third party operators of healthcare properties. We also own the real estate of 10 healthcare properties and lease these properties to third party operators.
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Executive Summary
Earnings
To monitor our earnings, we have developed budgets and management reports to monitor labor, census, and the composition of revenues. During certain inflationary times, our net patient revenues and government reimbursement may not keep pace with inflationary increases in our expenses, which may cause net earnings to decline.
Occupancy
A primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities. The overall census (based on operational beds) in owned and leased skilled nursing facilities for 2025 was 89.7% compared to 88.6% in 2024 and 87.9% in 2023.
Due to America’s healthcare labor shortage, the challenge of maintaining desirable patient census levels has been amplified. Management has undertaken a number of steps in order to best position our current and future health care facilities. This includes working internally to examine and improve systems to be most responsive to referral sources and payors, as well as find creative initiatives to retain and attract qualified healthcare professionals. Additionally, NHC is in various stages of partnerships with hospital systems, payors, and other post–acute alliances to better position ourselves so we are an active participant in the delivery of post-acute healthcare services.
Quality of Patient Care
The Centers for Medicare and Medicaid Services (“CMS”) introduced the Five-Star Quality Rating System to help consumers, their families and caregivers compare skilled nursing facilities more easily. The Five-Star Quality Rating System gives each skilled nursing operation a rating ranging between one and five stars in various categories (five stars being the best). The Company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance.
The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of December 31, 2025:
NHC Ratings Industry Ratings
Total number of skilled nursing facilities, end of period 80
Number of 4 and 5-star rated skilled nursing facilities 50
Percentage of 4 and 5-star rated skilled nursing facilities 62.5% 38.6%
Average rating for all skilled nursing facilities, end of period 3.83 2.95
Development and Growth
We are undertaking to expand our post–acute and senior health care operations while protecting our existing operations and markets. The following table lists our recent construction and purchase activities.
Type of Operation Description Size Location Placed in Service
Hospice New Agency 1 agency Cedar Bluff, VA March 2023
Skilled Nursing Acquisition 66 beds Nashville, TN May 2023
Homecare New Agency 1 agency Tallahassee, FL May 2023
Assisted Living Facility New Operations 135 units Vero Beach, FL July 2023
Assisted Living Facility New Operations 95 units Merritt Island, FL July 2023
Assisted Living Facility New Operations 100 units Stuart, FL July 2023
Hospice New Agency 1 agency Morristown, TN April 2024
Hospice New Agency 1 agency Lawrenceburg, TN July 2024
Hospice New Agency 1 agency Wytheville, VA August 2024
Hospice New Agency 1 agency Clinton, TN October 2024
On August 1, 2024, the Company purchased the assets of White Oak Management, Inc. (“White Oak”). The White Oak portfolio consisted of 15 skilled nursing facilities, two assisted living facilities, four independent living facilities and a long-term care pharmacy. The White Oak operations have 1,928 licensed skilled nursing beds, 48 assisted living units, and 302 independent living units in the states of South Carolina and North Carolina.
Accrued Risk Reserves
Our accrued professional liability and workers’ compensation reserves totaled $121,595,000 and $103,616,000 at December 31, 2025 and 2024, respectively, and are a primary area of management focus. We have set aside restricted cash and restricted marketable securities to fund our professional liability and workers’ compensation reserves.
As to exposure for professional liability claims, we have developed performance measures to bring focus to the patient care issues most likely to produce professional liability exposure, including in–house acquired pressure ulcers, significant weight loss and numbers of falls. These programs for certification, which we regularly modify and improve, have produced measurable improvements in reducing these incidents. Our experience is that achieving goals in these patient care areas improves both patient and employee satisfaction.
Segment Reporting
The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and behavioral health hospitals; and (2) homecare and hospice services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office.
The Company’s CODM evaluates performance including pretax earnings and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company, while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.
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The following tables set forth the Company’s consolidated statements of operations by business segment (in thousands):
Inpatient Services Homecare and Hospice All Other Total
Revenues:
Costs and Expenses:
Unrealized gains on marketable equity securities – – 22,344 22,344
Inpatient Services Homecare and Hospice All Other Total
Revenues:
Government stimulus income – – 9,445 9,445
Costs and Expenses:
Unrealized gains on marketable equity securities – – 30,958 30,958
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Inpatient Services Homecare and Hospice All Other Total
Revenues:
Costs and Expenses:
Interest expense (324 ) – – (324 )
Unrealized gains on marketable equity securities – – 14,944 14,944
Results of Operations
The following table and discussion set forth items from the consolidated statements of operations as a percentage of net operating revenues and grant income for the years ended December 31, 2025, 2024 and 2023.
Percentage of Net Operating Revenues
Year Ended December 31,
Revenues:
Government stimulus income – 0.7 –
Costs and Expenses:
Depreciation and amortization 3.0 3.2 3.7
Income from operations 8.4 6.9 5.1
Non–operating income 1.2 1.4 1.5
Interest expense (0.4 ) (0.3 ) (0.1 )
Unrealized gains on marketable equity securities 1.5 2.4 1.3
Income tax provision (2.7 ) (2.6 ) (2.1 )
Net (income) loss attributable to noncontrolling interest (0.2 ) 0.0 0.2
Net income attributable to common stockholders of NHC 7.8 % 7.8 % 5.9 %
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The following table sets forth the increase or (decrease) in certain items from the consolidated statements of operations as compared to the prior period (dollars in thousands).
Period to Period Increase (Decrease)
Amount Percent Amount Percent
Revenues:
Costs and Expenses:
Depreciation and amortization 2,935 7.0 (49 ) (0.1 )
2025 Compared to 2024
Net operating revenues and stimulus income for the year ended December 31, 2025 totaled $1,517,781,000 compared to $1,307,382,000 for the year ended December 31, 2024, an increase of 16.1%. The net operating revenues increase was due to an 8.4% increase in same-facility net operating revenues, as well as the August 1, 2024 acquisition of White Oak Manor ("White Oak").
For the year ended December 31, 2025, GAAP net income attributable to NHC was $120,015,000 compared to net income of $101,927,000 for the same period in 2024. Excluding the unrealized gains in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income was $104,067,000 for the year ended December 31, 2025 compared to $76,862,000 for the same period a year ago. The increase in non-GAAP earnings for the year ended December 31, 2025 compared to 2024 was primarily due to the continued increase in skilled nursing census, skilled nursing per diem increases from some of our governmental payors, the continued reduction of agency staffing expense, and the White Oak operations being accretive to earnings.
On August 1, 2024, the Company purchased the White Oak portfolio, including its long-term care pharmacy. The White Oak portfolio consists of 15 skilled nursing facilities, two assisted living facilities, and four independent living facilities. The White Oak operations have 1,928 licensed skilled nursing beds, 48 assisted living units, and 302 independent living units in the states of South Carolina and North Carolina.
Net operating revenues and stimulus income
Net patient revenues totaled $1,469,631,000 in 2025, an increase of $217,872,000, or 17.4%, compared to 2024.
The overall average census in owned and leased skilled nursing facilities for 2025 was 89.7% compared to 88.6% in 2024. The composite skilled nursing facility per diem increased 4.0% in 2025 compared to 2024. Medicare and managed care per diem rates increased 5.1% and 3.9%, respectively, in 2025 compared to 2024. Medicaid and private pay per diem rates increased 3.5% and 6.8%, respectively, in 2025 compared to 2024.
White Oak, acquired on August 1, 2024 and with a full year of operations in 2025, attributed to $227,545,000 in net patient revenues for the year ended December 31, 2025 compared to $96,052,000 for the year ended December 31, 2024. Also included in net patient revenues for the years ended December 31, 2025 and 2024, respectively, is $7,246,000 and $12,749,000 of supplemental Medicaid payments that were received to help mitigate the healthcare workforce crisis and the inflationary labor market.
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Other revenues in 2025 were $48,150,000, an increase of $1,972,000, or 4.3%, as further detailed in Note 3 to our consolidated financial statements.
During the year ended December 31, 2024, the Company recognized $9,445,000 related to the Employee Retention Credit (“ERC”) that was established by the CARES Act and intended to help businesses retain their workforce and avoid layoffs during the pandemic. The ERC provided a per employee credit to eligible businesses based on a percentage of qualified wages and health insurance benefits paid to employees. During the second quarter of 2024, all conditions related to the assistance were met and the credit was recognized as government grant income.
Total costs and expenses
Total costs and expenses were $1,389,429,000 for 2025, an increase of $171,942,000, or 14.1%, from $1,217,487,000 in 2024.
Salaries, wages, and benefits increased $110,150,000, or 13.6%, to $921,080,000 in 2025 from $810,930,000 in 2024. Salaries, wages, and benefits as a percentage of net operating revenues and stimulus income was 60.7% compared to 62.0% for the years ended December 31, 2025 and 2024, respectively.
The White Oak operations attributed to an increase of $87,199,000 in salaries, wages, and benefits for the year ended December 31, 2025 compared to the prior year.
Although we continue to face workforce and labor shortages within all of our operations, we are working diligently to find solutions to reduce and eliminate agency nurse staffing expenses within our healthcare operations. The labor and workforce shortages have resulted in us contracting with agency nurse staffing companies. For the year ended December 31, 2025 our agency nurse staffing expenses decreased $9,335,000, or approximately 66.6%, compared to the same period a year ago.
Other operating expenses increased $55,812,000, or 17.4%, to $377,202,000 for the year ended December 31, 2025 compared to $321,390,000 for the prior year. Other operating expenses as a percentage of net operating revenues and stimulus income was 24.9% and 24.6% for the years ended December 31, 2025 and 2024, respectively.
The White Oak operations attributed to an increase of $32,737,000 in other operating expenses for the year ended December 31, 2025 compared to the prior year. We have also incurred unfavorable claims activity within our professional liability captive insurance company during 2025. The unfavorable claims activity resulted in additional other operating expenses of $17,563,000 for the year ended December 31, 2025 compared to the same period a year ago.
During the second quarter of 2025, we contributed land to a newly-formed limited liability company resulting in an equity interest in the new entity. The fair value of the land contributed to the new entity was $5,625,000. The related cost basis of the contributed land was $2,019,000, which resulted in a gain of $3,606,000. This gain was netted with other operating expenses resulting in a decrease of $3,606,000 in other operating expenses as compared to the same period in the prior year.
Facility rent expense increased $3,045,000, or 7.1%, to $46,227,000 in 2025. Depreciation and amortization increased 7.0% to $44,920,000 in 2025. Interest expense increased $2,236,000 to $6,371,000 in 2025 from $4,135,000 in 2024 related to the outstanding long-term debt due to the White Oak acquisition in August 2024.
Other income
Non–operating income decreased by $1,583,000, or 8.0% to $18,107,000 in 2025 compared to the prior year, as further detailed in Note 4 to our consolidated financial statements.
We recorded unrealized gains in the amount of $22,344,000 for the increase in fair value of our marketable equity securities portfolio for the year ended December 31, 2025. The marketable equity securities portfolio consists mainly of publicly-traded healthcare REIT’s and other blue-chip public companies held within our insurance companies.
Income taxes
The income tax provision for 2025 is $39,826,000 (an effective income tax rate of 24.5%).
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2024 Compared to 2023
Net operating revenues and stimulus income for the year ended December 31, 2024 totaled $1,307,382,000 compared to $1,141,544,000 for the year ended December 31, 2023, an increase of 14.5%. The net operating revenues increase was primarily driven by the August 1, 2024 acquisition of White Oak Manor ("White Oak").
For the year ended December 31, 2024, GAAP net income attributable to NHC was $101,927,000 compared to net income of $66,798,000 for the same period in 2023. Excluding the unrealized gains in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income was $76,862,000 for the year ended December 31, 2024 compared to $54,934,000 for the same period a year ago. The increase in non-GAAP earnings for the year ended December 31, 2024 compared to 2023 was primarily due to the skilled nursing per diem increases from some of our government payors, the continued reduction of nurse agency staffing expense within our operations, and the White Oak operations being accretive to earnings.
On August 1, 2024, the Company purchased the White Oak portfolio, including its long-term care pharmacy. The White Oak portfolio consists of 15 skilled nursing facilities, two assisted living facilities, and four independent living facilities. The White Oak operations have 1,928 licensed skilled nursing beds, 48 assisted living units, and 302 independent living units in the states of South Carolina and North Carolina.
Net operating revenues and grant income
Net patient revenues totaled $1,251,759,000 in 2024, an increase of $164,145,000, or 15.1%, compared to 2023.
The overall average census in owned and leased skilled nursing facilities for 2024 was 88.6% compared to 87.9% in 2023. The composite skilled nursing facility per diem increased 6.8% in 2024 compared to 2023. Medicare and managed care per diem rates increased 5.0% and 0.7%, respectively, in 2024 compared to 2023. Medicaid and private pay per diem rates increased 8.6% and 12.3%, respectively, in 2024 compared to 2023.
White Oak, with five months of operations since the acquisition date, attributed to an increase of $96,052,000 in net patient revenues for the year ended December 31, 2024 compared to 2023. On March 1, 2024, the Company exited a lease and transferred the operations of two skilled nursing facilities (included assisted living units) and one memory care facility located in Missouri. The exiting of these operations resulted in net patient revenues decreasing $26,929,000 for the year ended December 31, 2024 compared to the prior year. Also included in net patient revenues for the years ended December 31, 2024 and 2023, respectively, is $12,749,000 and $20,214,000 of supplemental Medicaid payments that were received to help mitigate the healthcare workforce crisis and the inflationary labor market.
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Other revenues in 2024 were $46,178,000, a decrease of $7,752,000, or 14.4%, as further detailed in Note 3 to our consolidated financial statements. In December 2023, we contributed land to a newly-formed limited liability company resulting in an equity interest in the new joint venture. The fair value of the land contributed to the entity was $8,000,000 and the related cost basis in the land was $1,770,000, which resulted in a gain of $6,230,000.
During the year ended December 31, 2024, the Company recognized $9,445,000 related to the Employee Retention Credit (“ERC”) that was established by the CARES Act and intended to help businesses retain their workforce and avoid layoffs during the pandemic. The ERC provided a per employee credit to eligible businesses based on a percentage of qualified wages and health insurance benefits paid to employees. During the second quarter of 2024, all conditions related to the assistance were met and the credit was recognized as government grant income.
Total costs and expenses
Total costs and expenses were $1,217,487,000 for 2024, an increase of $133,401,000, or 12.3%, from $1,084,086,000 in 2023.
Salaries, wages, and benefits increased $98,586,000, or 13.8%, to $810,930,000 in 2024 from $712,344,000 in 2023. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 62.0% compared to 62.4% for the years ended December 31, 2024 and 2023, respectively.
The White Oak operations attributed to an increase of $63,223,000 in salaries, wages, and benefits for the year ended December 31, 2024 compared to the prior year. On March 1, 2024, the Company exited the lease and transferred the operations of two skilled nursing facilities (included assisted living units) and one memory care facility located in Missouri. The exiting of these operations resulted in salaries, wages, and benefits decreasing $20,169,000 for the year ended December 31, 2024 compared to the prior year.
We continue to face workforce and labor shortages within all of our operations. The labor and workforce shortages have resulted in us contracting with agency nurse staffing companies. For the year ended December 31, 2024 our agency nurse staffing expenses decreased $19,962,000, or approximately 66.2%, compared to the same period a year ago.
Other operating expenses increased $33,207,000, or 11.5%, to $321,390,000 for the year ended December 31, 2024 compared to $288,183,000 for the prior year. Other operating expenses as a percentage of net operating revenues and grant income was 24.6% and 25.2% for the years ended December 31, 2024 and 2023, respectively.
The White Oak operations attributed to an increase of $20,554,000 in other operating expenses for the year ended December 31, 2024 compared to the prior year. On March 1, 2024, the Company exited the lease and transferred the operations of two skilled nursing facilities (included assisted living units) and one memory care facility located in Missouri. The exiting of these operations resulted in other operating expenses decreasing $7,101,000 for the year ended December 31, 2024 compared to the prior year. We continue to face inflationary pressures in certain categories within other operating expenses as well, such as food/dietary supplies and drugs/pharmaceutical supplies.
Facility rent expense increased $1,657,000, or 4.0%, to $43,182,000 in 2024. Depreciation and amortization decreased 0.1% to $41,985,000 in 2024. Interest expense increased $3,811,000 to $4,135,000 in 2024 from $324,000 in 2023. At December 31, 2024, we have outstanding long-term debt of $137,000,000 due to the White Oak acquisition. In 2023, we didn't have any outstanding long-term debt.
Other income
Non–operating income increased by $3,030,000, or 18.2% to $19,690,000 in 2024 compared to the prior year, as further detailed in Note 5 to our consolidated financial statements.
We recorded unrealized gains in the amount of $30,958,000 for the increase in fair value of our marketable equity securities portfolio for the year ended December 31, 2024. The marketable equity securities portfolio consists mainly of publicly-traded healthcare REIT’s and other blue-chip public companies held within our insurance companies.
Income taxes
The income tax provision for 2024 is $34,322,000 (an effective income tax rate of 25.2%).
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Non-GAAP Financial Presentation
The Company is providing certain non-GAAP financial measures as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company’s operations and measure the Company’s performance more consistently across periods. Therefore, the Company believes this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.
Specifically, the Company believes the presentation of non-GAAP financial information that excludes the unrealized gains or losses on our marketable equity securities, stock-based compensation expense, gains on sale of property and equipment, operating results for start-up healthcare operations not at full capacity, acquisition related expenses, the recognition of the employee retention credit, and gains on sales of unconsolidated companies is helpful in allowing investors to assess the Company’s operations more accurately.
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The table below provides reconciliations of GAAP to non-GAAP items (dollars in thousands, except per share data):
Year Ended December 31,
Non-GAAP adjustments:
Unrealized gains on marketable equity securities (22,344 ) (30,958 ) (14,944 )
Gain on sale of property and equipment (3,606 ) – (6,230 )
Operating results for newly-opened operations not at full capacity – 130 2,359
Acquisition-related expenses – 3,266 –
Employee retention credit – (9,445 ) –
Gain on sale of unconsolidated company – (1,024 ) –
GAAP diluted earnings per share $ 7.67 $ 6.53 $ 4.34
Non-GAAP adjustments:
Unrealized gains on marketable equity securities (1.43 ) (1.98 ) (0.97 )
Stock-based compensation expense 0.28 0.28 0.18
Gain on sale of property and equipment (0.23 ) – (0.42 )
Operating results for newly-opened operations not at full capacity – 0.01 0.15
Acquisition-related expenses – 0.21 –
Employee retention credit – (0.61 ) –
Gain on sale of unconsolidated company – (0.07 ) –
Income tax expense on non-GAAP adjustments 0.36 0.56 0.27
Non-GAAP diluted earnings per share $ 6.65 $ 4.93 $ 3.55
Liquidity, Capital Resources and Financial Condition
Sources and Uses of Funds
Our primary sources of cash include revenues from the operations of our healthcare operations, management and accounting services, rental income, and investment income. Our primary uses of cash include salaries, wages and other operating costs of our healthcare operations, the cost of additions to and acquisitions of real property, facility rent expenses, and dividend distributions. These sources and uses of cash are reflected in our consolidated statements of cash flows and are discussed in further detail below.
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The following is a summary of our sources and uses of cash flows (dollars in thousands):
Year Ended One Year Change Year Ended One Year Change
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Operating Activities
Net cash provided by operating activities for the year ended December 31, 2025 was $185,078,000 as compared to $107,303,000 and $111,216,000 for the years ended December 31, 2024 and 2023, respectively. Cash provided by operating activities consisted of net income of $122,606,000 and adjustments for non–cash items of $30,244,000. There was cash provided by working capital needs in the amount of $33,395,000 for the year ended December 31, 2025. In 2024, there was cash used for working capital in the amount of $25,717,000.
Included in the adjustments for non-cash items are depreciation expense, equity in earnings of unconsolidated investments, unrealized gains on our marketable equity securities, gain on the sale of property and equipment, deferred taxes, and stock compensation.
Investing Activities
Net cash used in investing activities totaled $33,858,000 for the year ended December 31, 2025, as compared to $236,693,000 and $17,568,000 for the years ended December 31, 2024 and 2023, respectively. Cash used for property and equipment additions was $36,446,000, $27,600,000, and $27,901,000 for the years ended December 31, 2025, 2024 and 2023, respectively. For the year ended December 31, 2025, we contributed capital of $5,629,000 for two joint venture, multi-family developments that are under construction in Nashville, Tennessee compared to $14,298,000 for the same period in the prior year. Proceeds from the sale of marketable securities, net of purchases, resulted in cash proceeds of $7,705,000, $16,913,000, and $17,895,000 in 2025, 2024, and 2023, respectively.
On August 1, 2024, the acquisition of White Oak Senior Living resulted in cash used of $215,896,000. In January 2024, the Company sold its ownership interest in a homecare agency resulting in proceeds from the sale of $2,100,000.
Financing Activities
Net cash used in financing activities totaled $135,955,000 for the year ended December 31, 2025. Net cash provided by financing activities totaled $100,344,000 for the year ended December 31, 2024. Net cash used in financing activities totaled $42,545,000 for the year ended December 31, 2023. Cash used to pay down the outstanding principal balance of our long-term debt was $97,000,000 and $13,000,000 for the years ended December 31, 2025 and 2024, respectively. Dividends paid to common stockholders was $38,704,000, $36,964,000, and $35,560,000 for the years ended December 31, 2025, 2024 and 2023, respectively. Proceeds from the issuance of common stock totaled $14,214,000, $14,268,000, and $313,000 for 2025, 2024 and 2023, respectively. We repurchased common shares outstanding in the amount of $14,730,000, $13,502,000, and $2,482,000 for the years ended December 31, 2025, 2024, and 2023, respectively.
In 2024, the funding for the White Oak acquisition was provided by the Company’s cash on hand and borrowings under the credit facility of $150,000,000.
Short–term liquidity
We expect to meet our short–term liquidity requirements primarily from our cash flows from operating activities. In addition to cash flows from operations, we have current cash on hand of $92,829,000 and unrestricted marketable equity securities of $162,972,000. We also have unencumbered real estate and the borrowing capacity on our $50 million available line of credit. We believe these various resources are adequate to meet our contractual obligations and growth and development plans in the next twelve months.
Long–term liquidity
We expect to meet our long–term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $92,829,000, our unrestricted marketable equity securities of $162,972,000, and our borrowing capacity on the $50 million available line of credit. We also have substantial value in our unencumbered real estate assets, which could potentially be used as collateral in future borrowing opportunities.
Our ability to meet our long–term contractual obligations and to finance our operating requirements, growth and development plans will depend upon our future performance. Our future performance will be affected by business, economic, financial and other factors, including potential changes in state and federal government payment rates for health care, customer demand, success of our marketing efforts, pressures from competitors, and the state of the economy, including the state of financial and credit markets, as well as many unforeseen factors.
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Contingencies
See Note 16 to the consolidated financial statements for additional information on pending litigation and other contingencies.
Guarantees
At December 31, 2025, we have no agreements to guarantee the debt obligations of other parties.
We have no outstanding letters of credit. We may or may not in the future elect to use financial derivative instruments to hedge interest rate exposure in the future. At December 31, 2025, we did not participate in any such financial instruments.
New Accounting Pronouncements
See Note 1 to the consolidated financial statements for the impact of any new accounting standards.
Application of Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and cause our reported net income to vary significantly from period to period.
Our critical accounting policies that are both important to the portrayal of our financial condition and results and require our most difficult, subjective or complex judgments are as follows:
Net Patient Revenues and Accounts Receivable
Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, home health care services, hospice services and behavioral health services. Net patient revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient services. These amounts are due from patients, governmental programs, and other third-party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations.
The Company recognizes revenue as its performance obligations are completed. Routine services are treated as a single performance obligation satisfied over time as services are rendered. These routine services represent a bundle of services that are not capable of being distinct. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time when those services are rendered. Contract liabilities are recorded for payments the Company receives in which performance obligations have not been completed.
The Company determines the transaction price based on established billing rates reduced by explicit price concessions provided to third party payors. Explicit price concessions are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the consolidated statements of operations.
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Accrued Risk Reserves
We are self–insured for risks related to workers’ compensation and general and professional liability insurance. We have two wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.
Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.
We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverages include both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. Currently, our exposure to market risk relates primarily to our fixed–income and equity portfolios. These investment portfolios are exposed primarily to, but not limited to, interest rate risk, credit risk, equity price risk, and concentration risk. We also have exposure to market risk that includes our cash and cash equivalents. The Company's senior management has established comprehensive risk management policies and procedures to manage these market risks.
Interest Rate Risk
The fair values of our fixed–income investments fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in the fair values of those instruments. Additionally, the fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, the liquidity of the instrument and other general market conditions. At December 31, 2025, we have available for sale marketable debt securities in the amount of $123,293,000. The fixed income portfolio is comprised of investments with primarily short–term and intermediate–term maturities. The portfolio composition allows flexibility in reacting to fluctuations of interest rates. The fixed income portfolio allows our insurance company subsidiaries to achieve an adequate risk–adjusted return while maintaining sufficient liquidity to meet obligations.
Our cash and cash equivalents consist of highly liquid investments with a maturity of less than three months when purchased. As a result of the short–term nature of our cash instruments, a hypothetical 1% change in interest rates would have minimal impact on our future earnings and cash flows related to these instruments.
Our Credit Facility exposes us to variability in interest payments due to changes in Secured Overnight Financing Rate ("SOFR") interest rates. We manage our exposure to this interest rate risk by monitoring available financing alternatives. Our credit agreement requires principal and interest payments to be paid through maturity, pursuant to the amortization schedule.
We do not currently use any derivative instruments to hedge our interest rate exposure. We have not used derivative instruments for trading purposes and the use of such instruments in the future would be subject to approvals by the Investment Committee of the Board of Directors.
Credit Risk
Credit risk is managed by diversifying the fixed income portfolio to avoid concentrations in any single industry group or issuer and by limiting investments in securities with lower credit ratings. Corporate debt securities and asset–backed securities comprise approximately 61% of the fair value of the fixed income portfolio. At December 31, 2025, the credit quality ratings for our fixed income portfolio consisted of the following investment and non-investment grades (as a percent of fair value): 5% AAA rated, 40% AA rated, 39% A rated, 12% BBB rated, and 4% BB rated.
Equity Price and Concentration Risk
Our marketable equity securities are recorded at their fair market value based on quoted market prices. Thus, there is exposure to equity price risk, which is the potential change in fair value due to a change in quoted market prices. At December 31, 2025, the fair value of our marketable equity securities is approximately $180,169,000. Our investment in NHI comprises approximately $124,532,000, or 69.1%, of the total fair value of our marketable equity securities. We manage our exposure to NHI by closely monitoring the financial condition, performance, and outlook of the company. Hypothetically, a 10% change in quoted market prices would result in a related increase or decrease in the fair value of our equity investments of approximately $18,016,000. At December 31, 2025, our equity securities had net unrealized gains of $136,889,000. Of the total unrealized gains in our marketable equity securities, approximately $99,798,000 is related to our investment in NHI.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of National HealthCare Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of National HealthCare Corporation (the "Company") as of December 31, 2025 , the related consolidated statements of operations, comprehensive income, equity, and cash flows, for the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and the results of its operations and its cash flows for the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2026, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Estimation of Accrued Risk Reserves - General and Professional Liability Claims— Refer to Note 16 to the financial statements
Critical Audit Matter Description
The Company has retained significant self–insured risk for general and professional liability claims related to patient care and treatment. The accrued risk reserves include a liability for reported claims and estimates for projections of asserted and unasserted claims. The Company uses independent actuaries to assist management in estimating the claims obligations (for both asserted and unasserted claims) related to exposures in excess of coverage limits. Such estimates are based on many variables including historical and statistical information and other factors.
We identified the evaluation of the Company's accrued risk reserves for professional liability claims as a critical audit matter because the projection of settlement values for reported and unreported claims involves significant estimation by management. Auditing whether reserves for professional liability claims were appropriately recorded as of December 31, 2025 required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the estimation of accrued risk reserves for professional liability claims include the following, among others:
· Tested the effectiveness of management’s internal controls over the estimation of professional liability claims, including those over the projection of obligations for asserted and unasserted claims.
· Obtained and reviewed the Company’s insurance policies and compared the coverage and terms to the assumptions used by management.
· Tested the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were accurate and complete.
· With the assistance of our actuarial specialists, evaluated the methods and assumptions used by management to estimate the self-insurance reserves for general and professional liability claims by:
• Performing a retrospective review by comparing management’s prior year estimate to reported and paid losses for professional claims in the current year.
• Developing an independent range of estimated losses for the general and professional liability reserve and comparing management's estimate to our estimated independent range.
/s/ Deloitte & Touche LLP
Nashville, Tennessee
February 26, 2026
We have served as the Company's auditor since 2025.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of National HealthCare Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of National HealthCare Corporation (the Company) as of December 31, 2024, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We served as the Company's auditor from 2009 to 2025.
Nashville, Tennessee