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What changed in Pennant Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Pennant Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+264 added−305 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-23)

Top changes in Pennant Group, Inc.'s 2023 10-K

264 paragraphs added · 305 removed · 199 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

67 edited+20 added−17 removed153 unchanged
Biggest changeThe Center for Medicare and Medicaid Innovation (“Innovation Center”) implemented the original Home Health Value-Based Purchasing (“HHVBP”) Model from January 1, 2016 through December 31, 2021. The model was designed to support greater quality and efficiency of care among Medicare-certified Home Health Agencies (“HHA”) across the nation.
Biggest changePayments may be adjusted for certain variables including, but not limited to the number of visits provided, patient transfers, and other factors. Home Health Value Based Purchasing (“HHVBP”) . The Center for Medicare and Medicaid Innovation (“Innovation Center”) implemented the original HHVBP Model from January 1, 2016 through December 31, 2021.
We also report an “all other” category that includes general and administrative expense. Our reporting segments are business units that offer different services and that are managed separately to provide greater visibility into those operations.
We also report an “all other” category that includes general and administrative expense. Our reporting segments are business units that offer different services and are managed separately to provide greater visibility into those operations.
The disciplined acquisition and integration of strategic and underperforming operations is a key element of our past success and is integral to our future growth plans. We have historically successfully transitioned both turnaround and stable target businesses, transforming them into top-quality operations preferred by referral sources.
The disciplined acquisition and integration of strategic and underperforming operations is a key element of our past success and is integral to our future growth plans. Historically, we have successfully transitioned both turnaround and stable target businesses, transforming them into top-quality operations preferred by referral sources.
Our model is innovative because each operation has been, and will continue to be, an independent operating subsidiary that functions under the direction of local clinical and operational leaders, each of whom are empowered to make decisions based on the unique needs of the patients or residents, partners and communities they serve.
Our model is innovative because each operation has been, and will continue to be, an independent operating subsidiary that functions under the direction of local clinical and operational leaders, each of whom is empowered to make decisions based on the unique needs of the patients or residents, partners and communities they serve.
In 2022 and into 2023, HHS engaged in rulemaking under Section 1557 of the ACA that would expand the influence and authority of existing civil rights laws, and prohibitions against discrimination on the bases of race, national origin, sex (or sex stereotype), gender identity or expression, disability, or age, within the healthcare context.
In 2022 and 2023, HHS engaged in rulemaking under Section 1557 of the ACA that would expand the influence and authority of existing civil rights laws, and prohibitions against discrimination on the bases of race, national origin, sex (or sex stereotype), gender identity or expression, disability, or age, within the healthcare context.
Home health is often a cost-effective solution for patients and can also increase their quality of life by allowing them to receive excellent clinical services in the comfort and convenience of the patient's home.
Home health is often a cost-effective solution for patients and can also increase their quality of life by allowing them to receive excellent clinical services in the comfort and convenience of each patient’s home.
Our compliance program includes, among other things, (1) policies and procedures modeled after applicable laws, regulations, government manuals and industry practices and customs that govern the clinical, reimbursement and operational aspects of our subsidiaries; (2) training about our compliance process for the employees of our independent operating subsidiaries, our directors and officers; (3) training about Medicare and Medicaid laws, fraud and abuse prevention, clinical standards and practices, and claim submission and reimbursement policies and procedures for appropriate employees; and (4) internal controls that monitor, for example, the accuracy of claims, reimbursement submissions, cost reports and source documents, provision of patient care, services, and 14 Table of Contents supplies as required by applicable standards and laws, accuracy of clinical assessment and treatment documentation, and implementation of judicial and regulatory requirements (e.g., background checks, licensing and training).
Our compliance program includes, among other things, (1) policies and procedures modeled after applicable laws, regulations, government manuals and industry practices and customs that govern the clinical, reimbursement and operational aspects of our subsidiaries; (2) training about our compliance process for the employees of our independent operating subsidiaries, our directors and officers; (3) training about Medicare and Medicaid laws, fraud and abuse prevention, clinical standards and practices, and claim submission and reimbursement policies and procedures for appropriate employees; and (4) internal controls that monitor, for example, the accuracy of claims, reimbursement submissions, cost reports and source documents, provision of patient care, services, and supplies as required by applicable standards and laws, accuracy of clinical assessment and treatment documentation, and implementation of judicial and regulatory requirements (e.g., background checks, licensing and training).
To qualify for home health services, Medicare CoPs require that beneficiaries (1) be homebound (meaning that the beneficiary is unable to leave his/her 11 Table of Contents home without a considerable and taxing effort); (2) require intermittent skilled nursing, physical therapy or speech therapy services; (3) have a face to face encounter that (a) has occurred no more than 90 days prior to the start of care or within 30 days after the start of care, (b) was related to the primary reason the patient requires home health services, and (c) was performed by a physician or allowed non-physician provider; and (4) receive treatment under a plan of care established and periodically reviewed by a physician.
To qualify for home health services, Medicare CoPs require that beneficiaries (1) be homebound (meaning that the beneficiary is unable to leave his/her home without a considerable and taxing effort); (2) require intermittent skilled nursing, physical therapy, or speech therapy services; (3) have a face to face encounter that (a) has occurred no more than 90 days prior to the start of care or within 30 days after the start of care, (b) was related to the primary reason the patient requires home health services, and (c) was performed by a physician or allowed non-physician provider; and (4) receive treatment under a plan of care established and periodically reviewed by a physician.
Lastly, while our teams are local, they are also supported by cutting-edge systems and our “Service Center”, which is staffed with teams of subject-matter experts who advise regarding their respective fields of expertise, including information technology, compliance, human resources, accounting, payroll, legal, risk management, education and other services.
Lastly, while our teams are local, they are also supported by cutting-edge systems and our “Service Center”, which is staffed with teams of subject-matter experts who advise regarding their respective fields of expertise, including information technology, compliance oversight, human resources, accounting, payroll, legal, risk management, and other services.
We believe our unique operating model has allowed us to effectively transition to PDGM as local operations and clinical leaders, supported by our expert resources, have adapted to the new reimbursement environment. Payor Sources We derive revenue primarily from Medicare and Medicaid programs, managed care and private payors. Medicare .
We believe our unique operating model has allowed us to effectively transition to PDGM as local operations and clinical leaders, supported by our expert resources, have adapted to the new reimbursement environment. Payor Sources We derive revenue primarily from Medicare and Medicaid programs, managed care and private insurance, and private and other payors. Medicare .
Our expertise in acquiring and transforming strategic and underperforming operations allows us to consider a broad range of potential acquisition targets and will be a key element of our future success. Superior Clinical Outcomes and Quality Care. We will continue to achieve success by delivering high quality home health, hospice and senior living services.
Our expertise in acquiring and transforming strategic and underperforming operations allows us to consider a broad range of potential acquisition targets and will be a key element of our future success. Superior Clinical Outcomes and Quality Care. We will continue to succeed by delivering high quality home health, hospice and senior living services.
Presidential and congressional elections may result in significant changes in legislation, regulation, and implementation of Medicare, Medicaid, and government policy, along with potential changes to tax rates and other tax treatment of our operations. We continually monitor these developments so we can respond to the changing regulatory environment impacting our business.
Presidential and congressional elections may result in significant changes in legislation, regulation, and implementation of Medicare, Medicaid, and government policy, along with potential changes to tax rates and other tax treatment of our operations. We continually monitor these developments so we can respond to the changing regulatory environment impacting our business. Civil Rights.
Based on a notice of proposed rulemaking HHS issued in January of 2021, which has yet been finalized, it is possible that HHS may issue new regulations regarding HIPAA and its privacy requirements in 2023. Antitrust Laws. We are also subject to federal and state antitrust laws.
Based on a notice of proposed rulemaking HHS issued in January of 2021, which has yet been finalized, it is possible that HHS may issue new regulations regarding HIPAA and its privacy requirements in 2024. Antitrust Laws. We are also subject to federal and state antitrust laws.
Additionally, governmental agencies and other authorities periodically inspect our operations to assess our compliance with various standards, rules and regulations. The robust regulatory and enforcement environment continues to impact healthcare providers, especially in connection with responses to any alleged noncompliance identified in periodic surveys and other inspections by governmental authorities.
Additionally, government agencies and other authorities periodically inspect our operations to assess our compliance with various standards, rules and regulations. The robust regulatory and enforcement environment continues to impact healthcare providers, especially in connection with responses to any alleged noncompliance identified in periodic surveys and other inspections by government authorities.
In addition, CMPs, which are adjusted for annual inflation, and treble damages may be imposed for presenting or causing to be presented, a claim for a service rendered in violation of the Stark Law.
In addition, CMPs, which are adjusted for annual inflation, treble damages, and Medicare exclusion may be imposed for presenting or causing to be presented, a claim for a service rendered in violation of the Stark Law.
The industry is highly fragmented and characterized by numerous local and regional providers, in 8 Table of Contents addition to large national providers that have achieved geographic diversity and economies of scale. Some of our independent operating subsidiaries also compete with skilled nursing facilities, inpatient rehabilitation facilities and long-term acute care hospitals.
The industry is highly fragmented and characterized by numerous local and regional providers, in addition to large national providers that have achieved geographic diversity and economies of scale. Some of our independent operating subsidiaries also compete with skilled nursing facilities, inpatient rehabilitation facilities and long-term acute care hospitals.
Payments are based on daily rates for each day a beneficiary is enrolled in the hospice benefit and are subject to two annual caps. Rates are set based on specific levels of care, are adjusted by a wage index to reflect healthcare labor costs across the country and are established annually through federal legislation.
Hospice Reimbursement and Cap Amounts . Payments are based on daily rates for each day a beneficiary is enrolled in the hospice benefit and are subject to two annual caps. Rates are set based on specific levels of care, are adjusted by a wage index to reflect healthcare labor costs across the country and are established annually through federal legislation.
CMS uses seven measurements indicating quality to determine its quality of patient care rating, including how often the agency initiated care in a timely manner, how often patients demonstrated improvements in ambulation, bed transferring, bathing, oral medication administration, decreased pain with activity, less shortness of breath, and decreased need for acute care hospitalization.
CMS uses seven measurements indicating quality to determine its quality of patient care rating, including how often the agency initiated care in a timely manner, how often patients demonstrated improvements in ambulation, bed transferring, bathing, oral medication administration, less shortness of breath, and decreased need for acute care hospitalization.
Local leaders are heavily involved in the acquisition process and are recognized and rewarded as these acquired operations become the provider of choice in the communities they serve. Through our innovative operating model and disciplined approach to strategic growth, we have completed and successfully transitioned dozens of value-add operations.
Local leaders are heavily involved in the acquisition process and are recognized and rewarded as these acquired operations become the provider of choice in the communities they serve. Through our innovative operating model and disciplined approach to strategic growth, we have completed and successfully 9 Table of Contents transitioned dozens of value-add operations.
Using the CMS five-star quality rating criteria, our home health agencies achieved an average of 4.3 out of 5 stars across all agencies for the for the year ended December 31, 2022, compared to the industry average of 3.0 stars (see Government Regulation below for further discussion on the five-star quality rating system).
Using the CMS five-star quality rating criteria, our home health agencies achieved an average of 4.1 out of 5 stars across all agencies for the for the year ended December 31, 2023, compared to the industry average of 3.0 stars (see Government Regulation below for further discussion on the five-star quality rating system).
Accordingly, operations that have poor regulatory histories before we acquire them may be more likely to have sanctions imposed upon them by CMS or state regulators. Regulations Regarding Patient Record Confidentiality. We are also subject to laws and regulations enacted to protect the confidentiality of patient health information.
Accordingly, operations 15 Table of Contents that have poor regulatory histories before we acquire them may be more likely to have sanctions imposed upon them by CMS or state regulators. Regulations Regarding Patient Record Confidentiality. We are also subject to laws and regulations enacted to protect the confidentiality of patient health information.
Consequently, we are required to file reports and information with the Securities and Exchange Commission (“SEC”), including reports on the following forms: annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
Consequently, we are required to file reports and information with the Securities and Exchange Commission (“SEC”), 16 Table of Contents including reports on the following forms: annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
We believe this decentralized organizational structure will continue to improve the quality of our recruiting and facilitate successful acquisitions. We have two reportable segments: (1) home health and hospice services, which includes our home health, hospice and home care businesses; and (2) senior living services, which includes our assisted living, independent living and memory care 3 Table of Contents communities.
We believe this decentralized organizational structure will continue to improve the quality of our recruiting and facilitate successful acquisitions. We have two reportable segments: (1) home health and hospice services, which includes our home health, hospice and home care businesses; and (2) senior living services, which includes our assisted living, independent living and memory care communities.
GDP, or $253 billion, in 1980 to an estimated 18.3% of GDP, or $4.3 trillion, in 2021. CMS projects national healthcare spending will grow by an average of 5.1% annually from 2021 through 2030, accounting for approximately 19.6% of U.S. GDP, or approximately $6.8 trillion, in 2030.
GDP, or $253 billion, in 1980 to an estimated 17.3% of GDP, or $4.5 trillion, in 2022. CMS projects national healthcare spending will grow by an average of 5.1% annually from 2021 through 2030, accounting for approximately 19.6% of U.S. GDP, or approximately $6.8 trillion, in 2030.
Under the qui tam or “whistleblower” provisions of the FCA, a private individual with knowledge of fraud may bring a claim on behalf of the federal government and receive a percentage of the federal government’s recovery. Due to these whistleblower incentives, lawsuits have become more frequent.
Under the qui tam 14 Table of Contents or “whistleblower” provisions of the FCA, a private individual with knowledge of fraud may bring a claim on behalf of the federal government and receive a percentage of the federal government’s recovery. Due to these whistleblower incentives, lawsuits have become more frequent.
Requirements vary from state to state and these requirements can affect, among other things, personnel education and training, patient and personnel records, services, staffing levels, monitoring of patient wellness, patient furnishings, housekeeping services, dietary requirements, emergency plans and procedures, certification and licensing of staff prior to beginning employment, and patient rights.
Requirements vary from state to state and these requirements can affect, among other things, personnel education and training, patient and personnel records, services, 11 Table of Contents staffing levels, monitoring of patient wellness, patient furnishings, housekeeping services, dietary requirements, emergency plans and procedures, certification and licensing of staff prior to beginning employment, and patient rights.
In addition, CMS can recover overpayments from health care providers up to five years following the year in which payment was made. We may also face adverse consequences if we violate the federal Stark laws related to certain Medicare physician referrals.
In addition, CMS can recover overpayments from health care providers up to five years following the year in which payment was made. We may also face adverse consequences if we violate federal law related to certain Medicare physician referrals.
The first full performance year for the expanded HHVBP Model is CY 2023 (beginning January 1, 2023). Calendar Year 2025 will be the first year when payment will be adjusted determined on CY 2023 performance.
CY 2023 (beginning on January 1, 2023) was the first full performance year for the expanded HHVBP Model. Calendar Year 2025 will be the first year when payment will be adjusted determined on CY 2023 performance.
Competing companies may also offer newer or more recently renovated communities or different programs or services than we offer and may, therefore, attract individuals who are currently patients of our operations, potential residents of our facilities, or who are otherwise receiving our healthcare services.
Competing companies may also offer newer or more recently renovated communities or different programs or services than we offer and may, therefore, attract individuals who are currently patients of our operations, potential residents of our senior living communities, or who are otherwise receiving our healthcare services.
The inpatient cap limits hospice care provided on an inpatient basis. This cap limits the number of days that are paid at the higher inpatient care rate to 20.0% of the total number of days of hospice care that are provided to all Medicare beneficiaries served by a provider.
The inpatient cap limits hospice care provided on an inpatient basis. This cap limits the number of days that are 13 Table of Contents paid at the higher inpatient care rate to 20.0% of the total number of days of hospice care that are provided to all Medicare beneficiaries served by a provider.
Human Capital The operation of our home health and hospice operations and senior living communities requires a large number of highly skilled healthcare professionals and support staff. As of December 31, 2022, we had 5,335 employees who were employed by our independent operating subsidiaries or our Service Center.
Human Capital The operation of our home health and hospice operations and senior living communities requires a large number of highly skilled healthcare professionals and support staff. As of December 31, 2023, we had 5,791 employees who were employed by our independent operating subsidiaries or our Service Center.
As of December 31, 2022, we operate multiple lines of business, including home health, hospice and senior living, throughout Arizona, California, Colorado, Idaho, Iowa, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming.
As of December 31, 2023, we operate multiple lines of business, including home health, hospice and senior living, throughout Arizona, California, Colorado, Idaho, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming.
In addition, Medicaid or other state-specific programs in some states where we operate supplement payments for board and care services provided in assisted living and memory care communities. Competition The post-acute care industry is highly competitive, and we expect that the industry will become increasingly competitive in the future.
In addition, Medicaid or other state-specific programs in some states where we operate supplement payments for board and care services provided in assisted living and memory care communities. 8 Table of Contents Competition The post-acute care industry is highly competitive, and we expect that the industry will become increasingly competitive in the future.
Our hospice services focus on the physical, spiritual and psychosocial needs of terminally ill patients and their families and consist primarily of clinical care, education and counseling. We generated approximately 67.7%, 70.0% and 70.3% of our home health and hospice revenue from Medicare during the years ended December 31, 2022, 2021 and 2020, respectively. Senior Living.
Our hospice services focus on the physical, spiritual and psychosocial needs of terminally ill patients and their families and consist primarily of clinical care, education and counseling. We generated approximately 66.9%, 67.7% and 70.0% of our home health and hospice revenue from Medicare during the years ended December 31, 2023, 2022 and 2021, respectively. Senior Living.
This reduction penalty will be increased to 4.0% beginning in fiscal year 2024. Licensure and Certificates of Need (“CON”). Home health, hospice and most senior living communities operate under licenses granted by the health authorities of their respective states.
This reduction penalty increases to 4.0% beginning in fiscal year 2024. Licensure and Certificates of Need (“CON”). Home health, hospice and most senior living communities operate under licenses granted by the health authorities of their respective states.
Agency and Unit Growth Since 2014 2014 2015 2016 2017 2018 2019 2020 2021 2022 Home health and hospice agencies 25 32 39 46 54 63 76 88 95 Senior living communities (a) 15 36 36 43 50 52 54 54 49 Senior living units (a) 1,587 3,184 3,184 3,434 3,820 3,963 4,127 4127 3,500 Total number of home health, hospice, and senior living operations 40 68 75 89 104 115 130 142 144 (a) On January 27, 2022, affiliates of the Company, entered into certain operations transfer agreements with affiliates of Ensign, providing for the transfer of the operations of five senior living communities.
Agency and Unit Growth Since 2014 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Home health and hospice agencies 25 32 39 46 54 63 76 88 95 111 Senior living communities (a) 15 36 36 43 50 52 54 54 49 51 Senior living units (a) 1,587 3,184 3,184 3,434 3,820 3,963 4,127 4,127 3,500 3,588 Total number of home health, hospice, and senior living operations 40 68 75 89 104 115 130 142 144 162 (a) During January 2022, affiliates of the Company entered into certain operations transfer agreements with affiliates of Ensign, providing for the transfer of the operations of five senior living communities.
Civil and Criminal Fraud and Abuse Laws and Enforcement . Various complex federal and state laws exist which govern a wide array of referrals, relationships and arrangements, and prohibit fraud by healthcare providers. Governmental agencies are devoting increasing attention and resources to such anti-fraud efforts.
Various complex federal and state laws exist which govern a wide array of referrals, relationships and arrangements, and prohibit fraud by healthcare providers. Governmental agencies are devoting increasing attention and resources to such anti-fraud efforts.
The laws and statutes affecting the regulatory landscape of the home health, hospice and senior living industries continue to expand. We expect that these changes will continue after the end of the COVID-19 pandemic. In addition to this changing regulatory environment, federal, state and local officials are increasingly focusing their efforts on the enforcement of these laws.
The laws and statutes affecting the regulatory landscape of the home health, hospice and senior living industries continue to expand. We expect that these changes will continue. In addition to this changing regulatory environment, federal, state and local officials are increasingly focusing their efforts on the enforcement of these laws.
For the year ended December 31, 2022, we generated 72.3% of our revenue from home health and hospice services and 27.7% of our revenue from senior living services. Our diversified service portfolio allows us to opportunistically execute on our acquisition strategy as valuations fluctuate over industry cycles. Effective Talent Recruitment, Development and Retention.
For the year ended December 31, 2023, we generated 72.4% of our revenue from home health and hospice services and 27.6% of our revenue from senior living services. Our diversified service portfolio allows us to opportunistically execute on our acquisition strategy as valuations fluctuate over industry cycles. Effective Talent Recruitment, Development and Retention.
Rates are subject to a state’s annual 7 Table of Contents budgetary requirements and funding, statutory and regulatory changes and interpretations and rulings by individual state agencies and State Plan Amendments approved by CMS. Managed Care and Private Insurance .
Rates are subject to a state’s annual budgetary requirements and funding, statutory and regulatory changes and interpretations and rulings by individual state agencies and State Plan Amendments approved by CMS. Managed Care and Private Insurance .
We provide home health and hospice services through 95 agencies, and senior living services at 49 communities with 3,500 total units in our assisted living, independent living and memory care business. We derive revenue from a diversified blend of payors including Medicare and Medicaid programs, private pay patients and residents and managed care payors.
We provide home health and hospice services through 111 agencies, and senior living services at 51 communities with 3,588 total units in our assisted living, independent living and memory care business. We derive revenue from a diversified blend of payors including Medicare and Medicaid programs, private pay patients and residents and managed care payors.
(To be eligible, HHAs must meet a 90% target full provisional affirmation rate based on a minimum 10 requests/claims submitted.) This program is designed to reduce the number of Medicare appeals, improve provider compliance with Medicare program requirements, should not delay care to Medicare beneficiaries, and does not alter or reduce the Medicare home health benefit. 12 Table of Contents Hospice Reimbursement and Cap Amounts .
(To be eligible, HHAs must meet a 90% target full provisional affirmation rate based on a minimum 10 requests/claims submitted.) This program is designed to reduce the number of Medicare appeals, improve provider compliance with Medicare program requirements, should not delay care to Medicare beneficiaries, and does not alter or reduce the Medicare home health benefit.
We generate revenue in these communities primarily from private pay sources, with a portion earned from Medicaid or other state-specific programs. We derived approximately 71.3%, 71.3% and 73.2% of our senior living revenue from private pay sources during the years ended December 31, 2022, 2021 and 2020, respectively.
We generate revenue in these communities primarily from private pay sources, with a portion earned from Medicaid or other state-specific programs. We derived approximately 68.8%, 71.3% and 71.3% of our senior living revenue from private pay sources during the years ended December 31, 2023, 2022 and 2021, respectively.
The IMPACT Act requires the submission of standardized assessment data for quality improvement, payment and discharge planning purposes across the spectrum of post-acute care providers (“PACs”), including home health agencies. Failure to report such data when required would subject a PAC to a 2% reduction in market basket prices then in effect.
The IMPACT Act requires the submission of standardized assessment data for quality improvement, payment and discharge planning purposes across the spectrum of post-acute care providers (“PACs”), including home health agencies. Failure to report such data when required subjects a PAC to a 2% reduction in market basket prices then in effect. Hospice Quality Reporting Requirements (“HQRP”) .
As described in Item 1., Grow Talent Base and Develop Future Leaders, our CEO-in-Training program provides significant in-person instruction and extensive training with key leaders from across the organization to empower local leaders. For the year ended December 31, 2022, 57.6% of our total expenses were payroll related.
As described in Part 1, Item 1., Grow Talent Base and Develop Future Leaders, our CEO-in-Training program provides significant in-person instruction and extensive training with key leaders from across the organization to empower local leaders. For the year ended December 31, 2023, 58.3% of our total expenses were payroll related.
We believe that our achievement of high-quality clinical outcomes positions us as a solution for patients, residents and referral sources, leading to census growth and improved profitability. Diversified Portfolio by Payor and Services. As of December 31, 2022, we operated 95 home health and hospice agencies and 49 senior living communities across 14 states.
We believe that our achievement of high-quality clinical outcomes positions us as a solution for patients, residents and referral sources, leading to census growth and improved profitability. Diversified Portfolio by Payor and Services. As of December 31, 2023, we operated 111 home health and hospice agencies and 51 senior living communities across 13 states.
As of December 31, 2022, we provided assisted living, independent living and memory care services in 49 communities with 3,500 total available units.
As of December 31, 2023, we provided assisted living, independent living and memory care services in 51 communities with 3,588 total available units.
The following table sets forth our total revenue by payor source as a percent of revenue generated by each of our reportable segments and as a percentage of total revenue for the year ended December 31, 2022: Year Ended December 31, 2022 Home Health and Hospice Services Home Health Services Hospice Services Senior Living Services Total Revenue Medicare 50.3 % 87.4 % — % 49.0 % Medicaid 5.4 9.7 28.7 13.3 Subtotal 55.7 97.1 28.7 62.3 Managed care 31.8 2.7 — 13.1 Private and other (a) 12.5 0.2 71.3 24.6 Total revenue 100.0 % 100.0 % 100.0 % 100.0 % (a) Private and other payors in our home health and hospice services segment includes revenue from all payors generated in our home care operations.
The following table sets forth our total revenue by payor source as a percent of revenue generated by each of our reportable segments and as a percentage of total revenue for the year ended December 31, 2023: Year Ended December 31, 2023 Home Health and Hospice Services Home Health Services Hospice Services Senior Living Services Total Revenue Medicare 48.1 % 86.2 % — % 48.4 % Medicaid 4.8 10.7 31.2 14.2 Subtotal 52.9 96.9 31.2 62.6 Managed care 34.2 2.8 — 13.5 Private and other (a) 13.0 0.3 68.8 23.9 Total revenue 100.0 % 100.0 % 100.0 % 100.0 % (a) Private and other payors in our home health and hospice services segment includes revenue from all payors generated in our home care operations.
From 2014 to 2022, we grew our home health and hospice services and senior living services revenue by 423.5% or a compounded annual growth rate of 23.0%. 5 Table of Contents From December 31, 2014 to December 31, 2022, we grew the number of our home health and hospice agencies and senior living units by 280.0% and 120.5%, respectively.
From 2014 to 2023, we grew our home health and hospice services and senior living services revenue by 502.8% or a compounded annual growth rate of 22.1%. 5 Table of Contents From December 31, 2014 to December 31, 2023, we grew the number of our home health and hospice agencies and senior living units by 344.0% and 126.1%, respectively.
Because of this diversified portfolio, our blended payor mix was 49.0% Medicare, 13.3% Medicaid, 13.1% managed care and 24.6% private pay for the year ended December 31, 2022. Our balanced payor mix can provide greater business stability through economic cycles and mitigates volatility arising from government-driven reimbursement changes.
Because of this diversified portfolio, our blended payor mix was 48.4% Medicare, 14.2% Medicaid, 13.5% managed care and 23.9% private pay for the year ended December 31, 2023. Our balanced payor mix can provide greater business stability through economic cycles and mitigates volatility arising from government-driven reimbursement changes.
None of those employees are subject to a collective bargaining agreement relating to our operations. Our ability to attract and retain future leaders is critical to our ongoing success. Therefore, we are dedicated to continuously recruiting and developing a diverse group of capable leaders.
Our ability to attract and retain future leaders is critical to our ongoing success. Therefore, we are dedicated to continuously recruiting and developing a diverse group of capable leaders.
Our home health services consist of providing a combination of clinical services including nursing, speech, occupational and physical therapy, medical social work and home health aide services within a patient's home.
As of December 31, 2023, we provided home health and hospice services through 111 agencies. Our home health services consist of providing a combination of clinical services including nursing, speech, occupational and physical therapy, medical social work and home health aide services within a patient's home.
We use this data to communicate with key partners in an effort to reduce overall cost of care and drive improved clinical outcomes. We will continue to expand formal and informal partnerships across the healthcare continuum by strategically investing in programs and data analytics that help us and our partners improve care transitions, achieve better outcomes and reduce costs.
We will continue to 4 Table of Contents expand formal and informal partnerships across the healthcare continuum by strategically investing in programs and data analytics that help us and our partners improve care transitions, achieve better outcomes and reduce costs.
Company History The Pennant Group, Inc. was incorporated as a Delaware corporation on January 24, 2019, for the purpose of holding the home health and hospice agencies and substantially all of the senior living businesses of Ensign, which was formed in 1999 with the goal of establishing a new level of quality care within the skilled nursing industry.
Company History The Pennant Group, Inc. was incorporated as a Delaware corporation on January 24, 2019, for the purpose of holding the home health and hospice agencies and substantially all of the senior living businesses of The Ensign Group, Inc.
For those states that require a CON, we must also complete a separate application process establishing a location and must receive required approvals. Washington and Montana are the only CON state in which we operate home health or hospice agencies. Patient Protection and Affordable Care Act (“ACA”). Various healthcare reform provisions became law upon enactment of the ACA in 2010.
Washington and Montana are the only CON state in which we operate home health or hospice agencies. Patient Protection and Affordable Care Act (“ACA”). Various healthcare reform provisions became law upon enactment of the ACA in 2010.
Senior living services revenue is primarily derived from private pay residents at rates we establish based upon the needs of the resident, the amount of services we provide the resident, and market rate environment in the area of operation.
Senior living services revenue is primarily derived from private pay residents at rates we establish based upon the needs of the resident, the amount of services we provide the resident, and market rate environment in the area of operation. In addition, Medicaid or other state-specific programs may supplement payments for board and care services provided in senior living communities.
These states limit the entry of new providers or services and the expansion of existing providers or services in their markets through a CON process, which 13 Table of Contents is periodically evaluated and updated as required by applicable state law.
These states limit the entry of new providers or services and the expansion of existing providers or services in their markets through a CON process, which is periodically evaluated and updated as required by applicable state law. For those states that require a CON, we must also complete a separate application process establishing a location and must receive required approvals.
For more information about our operating segments, as well as financial information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 6, Business Segments , to the Consolidated Financial Statements. Services Home Health and Hospice. As of December 31, 2022, we provided home health and hospice services through 95 agencies.
For 3 Table of Contents more information about our operating segments, as well as financial information, see “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and Note 6, Business Segments , to the Consolidated Financial Statements. Services Home Health and Hospice.
Our local leadership approach enables us to adapt to and efficiently meet the needs of our partners in the communities we serve. Our clinical and data analytics capabilities foster 4 Table of Contents solutions and allow us to optimize clinical outcomes.
Our local leadership approach enables us to adapt to and efficiently meet the needs of our partners in the communities we serve. Our clinical and data analytics capabilities foster solutions and allow us to optimize clinical outcomes. We use this data to communicate with key partners in an effort to reduce overall cost of care and drive improved clinical outcomes.
According to the October 2022 quarterly refresh of CMS Home Health Compare star rating criteria, our home health agencies have achieved an average of 4.3 out of 5 stars across all agencies compared to the industry average of 3.0 stars. Excluding locations acquired in fiscal year 2022 and 2021 our star average star rating was 4.4.
According to the November 2023 quarterly refresh of CMS Home Health Compare star rating criteria, our home health agencies have achieved an average of 4.1 out of 5 stars across all agencies compared to the industry average of 3.0 stars. Home Health Reimbursement Under PDGM .
We believe that our ability to attract and retain qualified professional clinical staff stems from our ability to offer attractive wage and benefits packages, a high level of employee training, a culture that provides incentives for individual efforts and a quality work environment. 10 Table of Contents Government Regulation General.
We believe that our ability to attract and retain qualified professional clinical staff stems from our ability to offer attractive wage and benefits packages, a high level of employee training, a culture that provides incentives for individual efforts and a quality work environment. 10 Table of Contents Government Regulation Recent Updates We have disclosed under the heading “Government Regulation” in the 2022 Annual Report a summary of regulations that we believe materially affect our business, financial condition or results of operations.
Medicaid reimbursement varies from state to state and is based upon a number of different methodologies, including cost-based, prospective payment, case mixed adjusted payments, and negotiated rates.
Medicaid reimbursement formulas are established by each state with the approval of the federal government in accordance with federal guidelines. 7 Table of Contents Medicaid reimbursement varies from state to state and is based upon a number of different methodologies, including cost-based, prospective payment, case mixed adjusted payments, and negotiated rates.
If payments received by any one of our hospice provider numbers exceeds either of these caps, we are required to reimburse Medicare for payments received in excess of the cap amounts. The hospice cap amount for the 2022 fiscal year was $31,297.61; this amount is based upon the 2021 cap amount of $30,683.93 updated by 2% per beneficiary.
If payments received by any one of our hospice provider numbers exceeds either of these caps, we are required to reimburse Medicare for payments received in excess of the cap amounts. The hospice cap amount for the 2023 fiscal year was $32,486.92.
Medicaid programs generally provide health benefits for qualifying individuals and may supplement Medicare benefits for the disabled and for persons aged 65 and older meeting financial eligibility requirements. Medicaid reimbursement formulas are established by each state with the approval of the federal government in accordance with federal guidelines.
Medicaid programs generally provide health benefits for qualifying individuals and may supplement Medicare benefits for the disabled and for persons aged 65 and older meeting financial eligibility requirements.
In 2023 the hospice cap amount for the 2023 fiscal year is $32,486.92, which is a 3.8% increase from the fiscal year 2022 hospice cap of $31,297.61. Improving Medicare Post-Acute Care Transformation Act of 2014 (“IMPACT Act”) .
The hospice cap amount for the 2024 fiscal year is $33,494.01, which is a 3.1% increase over the fiscal year 2023 hospice cap. Improving Medicare Post-Acute Care Transformation Act of 2014 (“IMPACT Act”) .
The HHVBP Model supported efforts to build a health care system that delivers better care, spends health care dollars more wisely, and results in healthier people and communities. All Medicare-certified HHAs that provided services in Massachusetts, Maryland, North Carolina, Florida, Washington, Arizona, Iowa, Nebraska, and Tennessee competed on value, where payment was tied to quality performance.
All Medicare- 12 Table of Contents certified HHAs that provided services in Massachusetts, Maryland, North Carolina, Florida, Washington, Arizona, Iowa, Nebraska, and Tennessee competed on value, where payment was tied to quality performance.
We believe this approach is unique within our industries and allows us to preserve the “one-operation-at-a-time” focus and culture that has contributed to our success. 9 Table of Contents Proven Track Record of Successful Acquisitions. We adhere to a disciplined acquisition strategy focused on sourcing and selectively acquiring operations within our target markets.
We believe healthcare should be operated primarily as a local business. Our innovative operating model, described in Part 1, Item 1 - “Our Innovative Operating Model” , is one of our key competitive strengths. Proven Track Record of Successful Acquisitions. We adhere to a disciplined acquisition strategy focused on sourcing and selectively acquiring operations within our target markets.
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The name “Ensign” is synonymous with a “flag” or a “standard,” and refers to Ensign’s goal of setting the standard by which all others in its industry are measured. The name “Pennant” draws on similar imagery and themes to represent our mission of becoming the “Ensign” to the home health, hospice and senior living industries.
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(“Ensign”), which was formed in 1999 with the goal of establishing a new level of quality care within the skilled nursing industry. On October 1, 2019, Ensign completed the separation of Pennant (the “Spin-Off”).
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We believe healthcare should be operated primarily as a local business. Our local leadership-centered operating model encourages our leaders to make key operational decisions that meet the individualized needs of their patients, residents and community partners.
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We also operate joint ventures with leading health systems, which allows us to expand our partnership in the space, and may undertake additional joint ventures in the future.
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Recognizing the local nature of our business, our leaders develop each operation’s reputation at the local level, rather than being bound by a traditional organization-wide branding strategy. In addition, our local leaders work closely with their cluster partners to share data and improve clinical and financial outcomes.
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Since the time of the filing of the 2022 Annual Report, the following regulations have been updated. On July 28, 2023, CMS issued the Hospice Payment Rate Update final rule (the “Hospice Payment Final Rule”) for fiscal year 2024.
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Moreover, we do not maintain a traditional corporate headquarters, rather we operate our Service Center that supports operational results through world-class systems and by providing ancillary expertise in fields such as information technology, compliance, human resources, accounting, legal and education.
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The Hospice Payment Final Rule’s hospice payment update percentage is 3.1%, which is an estimated increase of $780 million in payments from fiscal year 2023. The payment update percentage of 3.1% is based on a 3.3% market basket percentage increase, which is reduced by a 0.2% productivity adjustment.
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This enables individual operations to function with the strength, synergies and economies of scale found in larger organizations, without the disadvantages of a top-down management structure or corporate hierarchy.
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The Hospice Payment Final Rule makes permanent the Hospice Quality Reporting Program (“HQRP”) data submission threshold policy adopted in the 2016 Hospice Payment Rule Update final rule, which is that hospices must submit at least 90 percent of required data within 30 days of the relevant reporting event.
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Home Health Reimbursement, including HH PPS and PDGM .
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Hospices that fail to meet quality reporting requirements will receive a 4% reduction to the annual hospice payment update percentage increase for that year, which would more than negate the payment update percentage for fiscal year 2024 contained in the Hospice Payment Final Rule for hospices that fail to submit required quality reporting data to CMS.
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The PDGM reimbursement structure involves case mix calculation methodology refinements, changes to low utilization payment adjustment (“LUPA”) thresholds, the elimination of therapy thresholds, a change to the unit of payment from a 60-day episode to a 30-day payment period, and the reduction in fiscal year 2020 and full elimination in fiscal year 2021 of the request for anticipated payment (“RAP”).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks presented by the ongoing effects of COVID-19 include the following: • In addition to the hazards posed by COVID-19 itself, the disruption caused by repeated waves of COVID-19 variants, including breakthrough infections of fully vaccinated individuals, poses a risk to the Company for the foreseeable future due to the potential consequences of such variants on Company personnel, labor pool participants, availability of necessary supplies, continued adverse impact on move-in rates within senior living, and consequences for the broader economy. • Decreased home health and hospice volumes and senior living occupancy, which has led to decreased revenue. • Increased costs and staffing requirements related to implementation of COVID-19 infection prevention protocols, including increased utilization of personal protective equipment (“PPE”), COVID-19 diagnostic testing and vaccination for staff and residents, and additional labor and cleaning supplies to frequently sterilize equipment and surfaces. • Increased labor costs due to increased overtime or premium pay, paid leave, reduced labor force participation, wage pressure from competitors, workers becoming ineligible for employment due to COVID-19 vaccination requirements, mandatory testing costs, and the increased need for temporary labor to supplement our existing staffing as our front-line employees may become unable to work while awaiting the results of COVID-19 tests or as they recover from a COVID-19 infection. • Increased scrutiny by regulators of infection control and prevention measures, including imposition of new COVID-19 disease and mortality reporting requirements, and increased enforcement of resident rights’ violations related to visitation. • Disruptions to supply chains which could negatively impact consistent and reliable delivery of PPE, sanitizing supplies, food, pharmaceuticals, and other goods. 25 Table of Contents • COVID-19 related illnesses in staff may impact the quality of care, which could lead to temporary staffing shortages or reliance on less experienced personnel. • Employee concerns related to workplace safety, including potential for increase in workers’ compensation claims. • Potential increase in insurance premiums and COVID-19 related claims. • Inconsistent application or interpretation of modifications to regulatory requirements by surveyors. • Potential for continued inflation resulting from changes in economic conditions and steps taken by the federal government and the Federal Reserve, which could lead to higher inflation rates or longer-lasting inflation than anticipated, which could in turn lead to an increase in expenses, including rent expense under our triple net leases.
Biggest changeRisks presented by the effects of COVID-19 include the following: • Disruption caused by repeated waves of COVID-19 variants, including breakthrough infections of fully vaccinated individuals, poses a risk to the Company for the foreseeable future due to the potential consequences of such variants on Company personnel, labor pool participants, availability of necessary supplies, continued adverse impact on move-in rates within senior living, and consequences for the broader economy. • Decreased home health and hospice volumes and senior living occupancy, which may lead to decreased revenue. • Increased costs and staffing requirements related to implementation of COVID-19 infection prevention protocols, including increased utilization of personal protective equipment (“PPE”), COVID-19 diagnostic testing and vaccination for staff and residents, and additional labor and cleaning supplies to frequently sterilize equipment and surfaces. • Increased labor costs due to increased overtime or premium pay, paid leave, reduced labor force participation, wage pressure from competitors, workers becoming ineligible for employment due to COVID-19 vaccination requirements, mandatory testing costs, reduction of the qualified workforce due to burnout and qualified personnel leaving the caregiving field, and the increased need for temporary labor to supplement our existing staffing as our front-line employees may become unable to work while awaiting the results of COVID-19 tests or as they recover from a COVID-19 infection. 26 Table of Contents • Increased scrutiny by regulators of visitation requirements, infection control and prevention measures, including imposition of new COVID-19 disease and mortality reporting requirements, and increased enforcement of resident rights’ violations related to visitation. • Disruptions to supply chains which could negatively impact consistent and reliable delivery of PPE, sanitizing supplies, food, pharmaceuticals, and other goods. • COVID-19 related illnesses in staff may impact the quality of care, which could lead to temporary staffing shortages or reliance on less experienced personnel. • Employee concerns related to workplace safety, including potential for increase in workers’ compensation claims. • Potential increase in insurance premiums and COVID-19 related claims. • Inconsistent application or interpretation of modifications to regulatory requirements by surveyors, including both COVID-19 survey standards and the resumption of pre-COVID-19 survey standards and practices. • Potential for continued inflation and price increases of certain goods or services resulting from changes in economic conditions and steps taken by the federal government and the Federal Reserve, which could lead to higher inflation rates or longer-lasting inflation than anticipated, which could in turn lead to an increase in expenses, including payroll, insurance, and rent expense under our triple net leases.
With respect to our hospice independent operating subsidiaries, overall payments made by Medicare for each Medicare beneficiary are subject to caps calculated by Medicare, as discussed in greater detail in Item 1., Government Regulation .
Our hospice independent operating subsidiaries are subject to annual Medicare caps calculated by Medicare. With respect to our hospice independent operating subsidiaries, overall payments made by Medicare for each Medicare beneficiary are subject to caps calculated by Medicare, as discussed in greater detail in Item 1., Government Regulation .
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.
In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or support of existing systems also could disrupt or reduce the efficiency of our operations.
If a cyber-security attack or other unauthorized attempt to access our systems or operations were to be successful, such as a ransomware attack, the incident could result in the theft, destruction, loss, misappropriation or release of confidential information or intellectual property, and could cause operational or business delays or disruptions that may materially impact our ability to provide various healthcare services.
If a cyber-security attack or other unauthorized attempt to access our systems, such as a ransomware attack, were to be successful, the incident could result in the theft, destruction, loss, misappropriation or release of confidential information or intellectual property, and could cause delays or disruptions that may materially impact our ability to provide various healthcare services.
Staffing challenges increased during the pandemic due to health care worker burnout, COVID exposures, vaccine mandates, and wage inflation, increasing the competition for qualified staff and cost of retaining personnel, and continue to affect our operations. There can be no assurance that we will be able to attract and retain key personnel going forward.
Staffing challenges increased during the pandemic and have persisted due to health care worker burnout, COVID-19 exposures, vaccine mandates, and wage inflation, increasing the competition for qualified staff and cost of retaining personnel, and continue to affect our operations. There can be no assurance that we will be able to attract and retain key personnel going forward.
If future investigations ultimately result in findings of significant billing and reimbursement noncompliance, which require us to record significant additional provisions or remit payments, our business, financial condition and results of operations could be materially and adversely affected. 20 Table of Contents We may be unable to complete future acquisitions at attractive prices or at all, which may adversely affect our revenue growth.
If future investigations ultimately result in findings of significant billing and reimbursement noncompliance, which require us to record significant additional provisions or remit payments, our business, financial condition and results of operations could be materially and adversely affected. We may be unable to complete future acquisitions at attractive prices or at all, which may adversely affect our revenue growth.
If state or federal regulators were to determine, formally or otherwise, that one operation’s regulatory history ought to impact another of our existing or prospective communities, this could also increase costs, result in additional fines or penalties, result in increased scrutiny by state and federal survey agencies, and impact our expansion plans as well as our ongoing operations.
If state or federal regulators were to determine, formally or otherwise, that one operation’s regulatory history ought to impact another of our existing or prospective communities, this could also increase costs, result in additional fines or penalties, result in increased scrutiny by state and 18 Table of Contents federal survey agencies, and impact our expansion plans as well as our ongoing operations.
If we fail to attract and retain qualified and skilled personnel, or if the associated costs increase, our independent operating subsidiaries’ ability to conduct their business operations effectively could be harmed.
If we fail to attract and retain qualified and skilled personnel, or if the associated costs to do so increase, our independent operating subsidiaries’ ability to conduct their business operations effectively could be harmed.
If we should fail to attain our goals regarding acute care hospitalization readmission rates and other quality 21 Table of Contents metrics, we expect our ability to generate referrals would be adversely impacted, which could have a material adverse effect upon our business financial condition, results of operations and cash flows.
If we should fail to attain our goals regarding acute care hospitalization readmission rates and other quality metrics, we expect our ability to generate referrals would be adversely impacted, which could have a material adverse effect upon our business financial condition, results of operations and cash flows.
A Medicare contractor may review patient records from one or more of our other independent operating subsidiaries, which may lead to those agencies having their Medicare payments suspended, whether temporarily or on an indefinite or permanent basis, potentially leading to their closure and resulting adverse impacts on our revenues and profits.
A Medicare contractor may review patient records from one or more of our other independent operating subsidiaries, which may lead to those agencies having their Medicare payments 25 Table of Contents suspended, whether temporarily or on an indefinite or permanent basis, potentially leading to their closure and resulting adverse impacts on our revenues and profits.
By way of example, in 2022 California passed Assembly Bill 2673 which prohibits issuance of new hospice licenses and limits transfer of existing licenses. Compliance with federal and state fair housing, fire, safety and other regulations may require us to make unanticipated expenditures, which could be costly to us.
By way of example, in 2022 California passed Assembly Bill 2673 which prohibits issuance of new hospice licenses and limits transfer of existing licenses. 20 Table of Contents Compliance with federal and state fair housing, fire, safety and other regulations may require us to make unanticipated expenditures, which could be costly to us.
As a result of the uncertain domestic and global political, credit and financial market conditions, investments in these types of instruments pose risks arising from liquidity and credit concerns. Inflation may negatively impact profitability. The annual inflation rate of 8.0% in 2022 has impacted our operations, placing upward pricing pressure on all things from wages to supplies to energy costs.
As a result of the uncertain domestic and global political, credit and financial market conditions, investments in these types of instruments pose risks arising from liquidity and credit concerns. Inflation may negatively impact profitability. The annual inflation rate in 2023 has impacted our operations, placing upward pricing pressure on all things from wages to supplies to energy costs.
The failure to make required payments on our debt or operating leases or the delay or abandonment of our planned growth strategy could result in an adverse effect on our future ability to generate revenue 22 Table of Contents and sustain profitability and subject us to foreclosure.
The failure to make required payments on our debt or operating leases or the delay or abandonment of our planned growth strategy could result in an adverse effect on our future ability to generate revenue and sustain profitability and subject us to foreclosure.
If funds are raised through the issuance of additional equity securities, the percentage ownership of our stockholders would be diluted, and any newly issued equity securities may have rights, preferences or privileges senior to those of our common stock.
If funds are raised through the issuance of additional equity securities, the percentage ownership of our stockholders would be diluted, and any newly issued equity securities may have rights, 21 Table of Contents preferences or privileges senior to those of our common stock.
Additionally, Medicare payments can be delayed or declined (including retroactively) due to determinations that certain costs, services or providers are not covered.
Additionally, Medicare payments can be delayed or denied (including retroactively) due to determinations that certain costs, services or providers are not covered.
These provisions could discourage, delay or prevent a transaction involving a change in control of our company, 24 Table of Contents including actions that our stockholders may deem advantageous, or negatively affect the trading price of our common stock.
These provisions could discourage, delay or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our common stock.
Additionally, the annual increase in Medicare beneficiary caps may not keep pace with the rate of inflation as it applies to the costs of caring for such patients, potentially resulting in our hospice independent operating subsidiaries treating these patients at a loss Security breaches and other cyber-security incidents could subject us to significant liability.
Additionally, the annual increase in Medicare beneficiary caps may not keep pace with the rate of inflation or increased operating costs as it applies to the costs of caring for such patients, potentially resulting in our hospice independent operating subsidiaries treating these patients at a loss. 19 Table of Contents Security breaches and other cyber-security incidents could subject us to significant liability.
As discussed in greater detail in Item 1., Government Regulation , our ability to acquire or establish new home health, hospice or senior living operations or expand or provide new services at existing operations would be adversely affected if we are unable to obtain the necessary approvals, if there are changes in the standards applicable to those approvals, new laws or changes in applicable laws governing CON requirements, or if we experience delays and increased expenses associated with obtaining those approvals.
As discussed in greater detail in Item 1., Government Regulation , our ability to acquire or establish new home health, hospice or senior living operations or expand or provide new services at existing operations would be adversely affected if we are unable to obtain the necessary approvals, if there are changes in the standards applicable to those approvals, new laws or changes in applicable laws governing CON requirements (or increasing the circumstances where a CON is needed), or if we experience delays and increased expenses associated with obtaining those approvals.
Additionally, recent changes in California law, through its passage of AB 35, has increased the non-economic (i.e., pain and suffering) damages that may be recovered by attorneys on claims of professional negligence or malpractice in the healthcare setting, and may embolden plaintiff’s attorneys to be more aggressive in their pursuit of facilities operated by our independent operating subsidiaries and the services provided through them.
Additionally, California, through its passage of AB 35, has increased the non-economic (i.e., pain and suffering) damages that may be recovered by attorneys on claims of professional negligence or malpractice in healthcare cases filed in California, and may embolden plaintiff’s attorneys to be more aggressive in their pursuit of facilities operated by our independent operating subsidiaries and the services provided through them.
It is likely that healthcare companies, including those in the post-acute care and senior living industries in which we operate, could become targets of plaintiffs’ litigation, alleging negligence, wrongful death, and similar claims resulting from where cases of COVID-19 occurred in senior living communities and through the direct contact with COVID-19 positive patients of our home health and hospice providers.
Healthcare companies, including those in the post-acute care and senior living industries in which we operate, may become targets of plaintiffs’ litigation, alleging negligence, wrongful death, and similar claims resulting from where cases of COVID-19 occurred in senior living communities and through the direct contact with COVID-19 positive patients of our home health and hospice providers.
Inflation is expected to continue in 2023 and may affect the Company’s profit in providing services. We have historically derived a substantial portion of our revenue from the Medicare program. We also derive revenue from state Medicaid and similar reimbursement programs. Payments under these programs generally provide for reimbursement levels that are adjusted for inflation annually.
Inflation is expected to remain relatively consistent in 2024, but may continue to affect the Company’s profit in providing services. We have historically derived a substantial portion of our revenue from the Medicare program. We also derive revenue from state Medicaid and similar reimbursement programs. Payments under these programs generally provide for reimbursement levels that are adjusted for inflation annually.
Risks Related to Our Business and Industry Our revenue could be impacted by federal changes to reimbursement and other aspects of Medicare. We derived 49.0% of our revenue from the Medicare program for the year ended December 31, 2022, which is typical. In addition, other payors may use published Medicare rates as a basis for reimbursements.
Risks Related to Our Business and Industry Our revenue could be impacted by federal changes to reimbursement and other aspects of Medicare. We derived 48.4% of our revenue from the Medicare program for the year ended December 31, 2023, which is typical. In addition, other payors may use published Medicare rates as a basis for reimbursements.
While these leases contain provisions capping the increased rent expense each year, increased inflation could cause our rent expense in our senior living business to increase at a greater rate than in prior years. • Potential for future investigations, sanctions, fines, or other penalties arising from the conclusion of the COVID-19 PHE and the expiration of waivers and flexibilities enacted at the federal and state levels as a result of the PHE, and the need to update and amend policies and procedures to timely acknowledge the expiration of these waivers and flexibilities.
While these leases contain provisions capping the increased rent expense each year, increased inflation could cause our rent expense in our senior living business to increase at a greater rate than in prior years. • Potential for future investigations, sanctions, fines, or other penalties arising from the conclusion of the COVID-19 PHE and the expiration of waivers and flexibilities enacted at the federal and state levels as a result of the PHE, and the need to update and amend policies and procedures to timely acknowledge the expiration of these waivers and flexibilities and meet new standards concerning visitation and infection control that arose from the COVID-19 PHE.
Because we lease all of our affiliated senior living communities, we could experience risks associated with leased property, including risks relating to lease termination, lease extensions and special charges, which could adversely affect our business, financial position or results of operations. As of December 31, 2022, we leased all except one of our senior living communities and administrative offices.
Because we lease most of our affiliated senior living communities, we could experience risks associated with leased property, including risks relating to lease termination, lease extensions and special charges, which could adversely affect our business, financial position or results of operations. As of December 31, 2023, we leased all of our senior living communities, except for one.
For the year ended December 31, 2022, 62.3% of our revenue was provided by government payors that reimburse us at predetermined rates, which is typical.
For the year ended December 31, 2023, 62.6% of our revenue was provided by government payors that reimburse us at predetermined rates, which is typical.
Inflation may also lead to increased interest rates, which could increase our cost of capital, impair consumers’ ability to purchase our services, or otherwise harm us financially. Extreme weather, natural disasters, or other catastrophic events could adversely effect our results from operations.
Inflation has led, and may continue to lead, to increased interest rates, which have and could continue to increase our cost of capital, impair consumers’ ability to purchase our services, or otherwise harm us financially. Extreme weather, natural disasters, or other catastrophic events could adversely effect our results from operations.
COVID-19 could lead to future litigation. COVID-19 has affected virtually all businesses in the country, and healthcare providers have been acutely impacted due to direct involvement with the virus. The challenges of dealing with a global pandemic have been amplified by supply shortages, lack of available tests, and constantly evolving information.
COVID-19 could lead to future litigation. COVID-19 has affected virtually all businesses in the country, and healthcare providers have been acutely impacted due to direct involvement with the virus. The challenges of dealing with a global pandemic have been amplified by supply shortages (including testing supplies) and evolving information.
Some states in which we operate are operating with budget deficits or could have a budget deficit in the future, which may delay reimbursement in a manner that would adversely affect our liquidity. In addition, from time to time, procedural issues require us to resubmit claims before payment is remitted, which contributes to aged receivables.
Some states in which we operate experience or have experienced budget deficits or could have a budget deficit in the future, which may delay 24 Table of Contents reimbursement in a manner that would adversely affect our liquidity. In addition, from time to time, procedural issues require us to resubmit claims before payment is remitted, which contributes to aged receivables.
Based on the results of its claim review, the UPIC alleged actual overpayments of $0.4million and extrapolated overpayments of $5.2 million based upon its sampled and extrapolated data. In September and October 2022, the Company submitted requests for redetermination of the alleged overpayments. The UPIC’s redetermination decision was partially favorable.
Based on the results of its claim review, the UPIC alleged actual overpayments of $0.4 million and extrapolated overpayments of $5.2 million based upon its sampled and extrapolated data. In September and October 2022, the Company submitted requests for redetermination of the alleged overpayments.
Two of our directors continue to serve on the Ensign board of directors and substantially all of our executive officers and some of our non-employee directors own shares of Ensign common stock.
Two of our directors continue to serve on the Ensign board of directors and a portion of our executive officers and non-employee directors own shares of Ensign common stock.
If our employees decide to unionize, our cost of doing business could increase, our operations could experience disruption, and affected operations may no longer be economical to continue operating.
If union activity among our employees increases, our cost of doing business could increase, our operations could experience disruption, and affected operations may no longer be economical to continue operating.
Further, many claims and other risks we face are not insurable. Attributable to the COVID-19 pandemic, insurers may increase their exclusions of infectious diseases or raise costs of coverage significantly affecting our ability to obtain insurance coverage. We retain certain risks related to our insurance coverage.
Attributable to the COVID-19 pandemic, insurers may increase their exclusions of infectious diseases or raise costs of coverage significantly affecting our ability to obtain insurance coverage. We retain certain risks related to our insurance coverage.
Accordingly, if Medicare reimbursement rates are reduced or fail to increase as quickly as our costs, or if there are changes in 16 Table of Contents the way these programs pay for services or what services or providers are covered, our business and results of operations would be adversely affected.
Accordingly, if Medicare reimbursement rates are reduced or fail to increase as quickly as our costs, if we do not realize an adequate percentage of billed Medicare charges, or if there are changes in the way these programs pay for services or what services or providers are covered, our business and results of operations would be adversely affected.
This could create, or appear to create, potential conflicts of interest when our or Ensign’s management or directors face decisions that could have different implications for us and Ensign, including the resolution of any dispute regarding the terms of the agreements governing the Spin-Off and the relationship between us and Ensign after the Spin-Off, any commercial agreements entered into in the future between us and Ensign and the allocation of such directors’ time between us and Ensign.
This could create, or appear to create, potential conflicts of interest when our or Ensign’s management or directors face decisions that could have different implications for us and Ensign, including our existing long term leases, any commercial agreements entered into in the future between us and Ensign and the allocation of such directors’ time between us and Ensign.
COVID-19 has generated, and will likely continue to generate, dramatic and rapid changes in the laws affecting our operations. U.S. Federal, state, and local regulators implemented new laws, rules, regulations, and orders, or waived or modified existing laws, rules and regulations for the duration of the COVID-19 public health emergency (“PHE”).
COVID-19 generated dramatic and rapid changes in the laws affecting our operations, and the unwinding of pandemic-related activities may continue to affect our business in the foreseeable future. U.S. Federal, state, and local regulators implemented new laws, rules, regulations, and orders, or waived or modified existing laws, rules and regulations for the duration of the COVID-19 public health emergency (“PHE”).
We are subject to various government reviews, audits and investigations that could adversely affect our business, including an obligation to refund amounts previously paid to us, potential criminal charges, the imposition of fines, and/or the loss of our right to participate in Medicare and Medicaid programs.
It is possible new laws may lower reimbursement or increase the cost of doing business and adversely affect our business. 17 Table of Contents We are subject to various government reviews, audits and investigations that could adversely affect our business, including an obligation to refund amounts previously paid to us, potential criminal charges, the imposition of fines, and/or the loss of our right to participate in Medicare and Medicaid programs.
Throughout 2022, however, there has been a nationwide trend of service workers successfully organizing to unionize their workplaces, which may increase the likelihood of our employees seeking to unionize their activities at one or more locations controlled by our independent operating subsidiaries.
Increasing trends of service workers successfully organizing to unionize their workplaces, may increase the likelihood of our employees seeking to unionize their activities at one or more additional locations controlled by our independent operating subsidiaries.
The Company plans to continue to contest the UPIC’s initial overpayment determination for the claim samples redetermined adversely to the Company. This suspension and overpayment allegation may increase the likelihood that this or other of our independent operating subsidiaries may be subjected to additional scrutiny in the future.
This suspension and overpayment allegation may increase the likelihood that this or other of our independent operating subsidiaries may be subjected to additional scrutiny in the future.
Appealing a failed inspection can be costly and time-consuming and, if we do not successfully remediate the failed inspection, we could be precluded from obtaining HUD financing in the future or we may encounter limitations or prohibitions on our operation of HUD-insured communities. 23 Table of Contents Failure to comply with existing environmental laws could result in increased expenditures, litigation and potential loss to our business and in our asset value.
Appealing a failed inspection can be costly and time-consuming and, if we do not successfully remediate the failed inspection, we could be precluded from obtaining HUD financing in the future or we may encounter limitations or prohibitions on our operation of HUD-insured communities.
Seniors often use the proceeds of home sales to fund their admission to assisted living communities. A downturn in the housing markets could adversely affect seniors’ ability to afford our resident fees and entrance fees.
Seniors often use the proceeds of home sales to fund their admission to assisted living communities. A downturn in the housing markets, such as the downturn that was ongoing in 2022 and 2023 as a result of higher than normal mortgage interest rates, could adversely affect seniors’ ability to afford our 23 Table of Contents resident fees and entrance fees.
If we or our operations are subject to litigation of this nature, such litigation may result in legal fees, damages, fines or settlements in amounts that could be material. Rules mandating COVID-19 vaccination may subject us to penalties and other challenges.
If we or our operations are subject to litigation of this nature based on pandemic-era activity, such litigation may result in legal fees, damages, fines or settlements in amounts that could be material.
The full range of their direct and indirect consequences of the COVID-19 pandemic on our business are not yet known. Similarly, the risks and consequences of the COVID-19 PHE’s termination and conclusion of emergency responses to COVID-19 in states and localities where we operate are not yet fully known and may adversely affect our business.
Similarly, not all the risks and consequences of the COVID-19 PHE’s termination and conclusion of emergency responses to COVID-19 in states and localities where we operate are not yet fully known, and may yet adversely affect our business in ways that are evolving or may only be evident with the passage of time.
In the process of acquiring or transferring operating assets, our operations must receive change of ownership approvals from state licensing agencies, Medicare and Medicaid, and third party payors.
Our independent operating subsidiaries must be licensed under applicable state law and, depending upon the type of operation, certified or approved as providers under the Medicare and/or Medicaid programs. In the process of acquiring or transferring operating assets, our operations must receive change of ownership approvals from state licensing agencies, Medicare and Medicaid, and third party payors.
Our claims history, asset mix, or other factors may adversely affect our ability to obtain insurance at favorable rates. Our insurance carriers may require us to pay substantially higher premiums for the same or reduced coverage for insurance, including workers compensation, property and casualty, automobile, employment practices liability, directors and officers liability, employee healthcare and general and professional liability coverages.
Our insurance carriers may 22 Table of Contents require us to pay substantially higher premiums for the same or reduced coverage for insurance, including workers compensation, property and casualty, automobile, employment practices liability, directors and officers liability, employee healthcare and general and professional liability coverages. Further, many claims and other risks we face are not insurable.
The resumption of pre-COVID-19 regulatory requirements at the conclusion of the public health emergency may require significant operational changes on short notice. COVID-19 and related risks have affected and could materially affect our results of operations, financial position and/or liquidity. The global spread of COVID-19 and the various attempts to contain it have created significant volatility, uncertainty and economic disruption.
COVID-19 and related risks have affected and could materially affect our results of operations, financial position and/or liquidity. The global spread of COVID-19 and the various attempts to contain it created significant volatility, uncertainty and economic disruption, and we continue to see the after-effects of these changes today.
Projections of self-insured retention losses are estimates that are subject to significant variability, and as a result, actual losses and expenses may be more or less than recorded liabilities. The unionization of our workers may adversely affect our revenue and profitability. To date, our employees have chosen not to unionize.
Projections of self-insured retention losses are estimates that are subject to significant variability, and as a result, actual losses and expenses may be more or less than recorded liabilities. Our self-insurance programs may expose us to significant and unexpected costs and losses.
Because labor represents a large portion of our operating costs, changes in federal and state employment-related laws and regulations could increase our cost of doing business.
Because labor represents a large portion of our operating costs, changes in federal and state employment-related laws and regulations could increase our cost of doing business. We also may be subject to employee-related claims such as wrongful discharge, discrimination or violation of equal employment law.
Furthermore, in some states, citations issued against one operation can affect other operations in the state.
Furthermore, in some states, citations issued against one operation can affect other operations in the state, particularly where there is any element of common or affiliated ownership.
The loss of, 18 Table of Contents or failure to recruit, such key personnel could have a material adverse effect on our business and could adversely affect our strategic relationships and impede our ability to execute our business strategies.
The loss of, or failure to recruit, such key personnel could have a material adverse effect on our business and could adversely affect our strategic relationships and impede our ability to execute our business strategies. The market for qualified individuals is highly competitive and finding and recruiting suitable replacements for our leaders may be difficult, time consuming and costly.
If we experience problems with our billing information systems or if issues arise with Medicare, Medicaid or other payors, we may encounter delays in our payment cycle. From time to time, we have experienced such delays as a result of government payors instituting planned reimbursement delays for budget balancing purposes or as a result of prepayment reviews.
From time to time, we have experienced such delays as a result of government payors instituting planned reimbursement delays for budget balancing purposes or as a result of prepayment reviews.
Responding to audits, litigation or enforcement efforts diverts material time, resources and attention, and could have a materially detrimental impact on our results of operations during and after any such investigation or proceedings, regardless of whether we prevail. 17 Table of Contents If we do not operate in compliance with the extensive laws and regulations to which we are subject, or if these laws and regulations change, we could be required to make significant expenditures or change our operations to bring our operations into compliance.
Responding to audits, litigation or enforcement efforts diverts material time, resources and attention, and could have a materially detrimental impact on our results of operations during and after any such investigation or proceedings, regardless of whether we prevail.
We derived 13.3% of our revenue from Medicaid programs for the year ended December 31, 2022, which is typical. Any budget reductions or funding restrictions, discontinuance or reduction of federal matching, change in payment methodology or delays in states in which we operate could adversely affect our net patient service revenue and profitability.
Any budget reductions or funding restrictions, discontinuance or reduction of federal matching, change in payment methodology or delays in states in which we operate could adversely affect our net patient service revenue and profitability, including the reduction of federal funds contributed to state Medicaid budgets during the COVID-19 public health emergency.
In addition, enrollment in Medicare Advantage programs continues to grow nationwide, and an increasing proportion of Medicare and Medicaid funds are managed by payors who may seek to reduce reimbursement as described above. Increased competition for, or a shortage of, nurses and other skilled personnel could increase our staffing and labor costs and negatively impact our operations.
In addition, enrollment in Medicare Advantage programs continues to grow nationwide, and an increasing proportion of Medicare and Medicaid funds are managed by companies that are also third-party payors who may seek to reduce reimbursement as described above.
Unanticipated delays in receiving reimbursement from state programs due to changes in their policies or billing or audit procedures may adversely impact our liquidity and working capital. Compliance with the regulations of the Department of Housing and Urban Development (“HUD”) may require us to make unanticipated expenditures which could increase our costs.
Compliance with the regulations of the Department of Housing and Urban Development (“HUD”) may require us to make unanticipated expenditures which could increase our costs.
In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security of our information systems.
Our security measures designed to protect our information systems, data and patient health information and disaster recovery plan may not prevent damage, interruption, or breach of our information systems and operations. In addition, hardware, software or applications we use may contain defects in design or manufacture or other problems that could unexpectedly compromise the security of our information systems.
We also may be subject to employee-related claims such as wrongful discharge, discrimination or violation of equal employment law. 19 Table of Contents Employment claims, such as wage and hour claims, frequently are the subject of class action lawsuits in many states in which our independent affiliates operate, including, for example, California.
Employment claims, such as wage and hour claims, frequently are the subject of class action lawsuits in many states in which our independent affiliates operate, including, for example, California. Required regulatory approvals could delay or prohibit transfers of our healthcare operations, which could result in periods in which we are unable to receive reimbursement for such properties.
Now three years into the COVID-19 pandemic, which appears to be an endemic and ongoing circumstance to be managed, and with the end of the federal COVID-19 PHE approaching on May 11, 2023, many of the direct and indirect consequences of COVID-19 on our business are known; however, new developments such as waves of COVID-19 variants, second-order effects such as supply chain and labor supply issues are ongoing.
Many of the direct and indirect consequences of COVID-19 on our business are now known; however, new developments in the wake of the PHE’s termination, as well as legacy consequences from the COVID-19 pandemic including COVID-19 variants, second-order effects such as inflation, consumer demand, and labor supply issues are ongoing.
The consequences of the recent 2022 mid-term elections are not yet fully known for this industry, and it may be further affected by the commencement of Presidential primary campaigns in mid-2023 onward. It is possible new laws may lower reimbursement or increase the cost of doing business and adversely affect our business.
The consequences of elections are not yet fully known for this industry, and our industry may be affected by the Presidential primary campaigns that began in 2023 and will continue this year, culminating with the presidential election in November of 2024.
This rule requires employees of certain Medicare-participating facilities and services including home health agencies and hospices to be vaccinated, which has affected and continues to affect our businesses and employees. Reductions in Medicaid reimbursement rates or changes in the rules governing the Medicaid program could have a material, adverse effect on our revenues, financial condition and results of operations.
Reductions in Medicaid reimbursement rates or changes in the rules governing the Medicaid program could have a material, adverse effect on our revenues, financial condition and results of operations. We derived 14.2% of our revenue from Medicaid programs for the year ended December 31, 2023, which is typical.
The Company may be subject to fines, penalties or judgments, or may otherwise be negatively impacted, if it is found not to have complied with any such current or future vaccination requirements, including CMS’s interim final rule requiring COVID-19 vaccination. Current or prospective employees may oppose vaccination, making it more difficult to recruit or retain staff.
The Company may be subject to fines, penalties or judgments, or may otherwise be negatively impacted, if it is found not to have complied with these vaccination requirements when they were in effect. These consequences may include fines, penalties, and other administrative sanctions.
Removed
Our operations may not successfully implement or adapt to these changes and our operations could be materially impacted.
Added
Our operations may not successfully implement or adapt to these changes and our operations could be materially impacted. Medicare reimbursement and participation may also be tied to the vaccination of employees against COVID-19 pursuant to a CMS rule which took effect in March 2022 and was in effect until August of 2023 when CMS withdrew this requirement.
Removed
As discussed below, Medicare reimbursement and participation may also be tied to the vaccination of employees pursuant to an interim final rule published by CMS on November 5, 2021, which the United States Supreme Court affirmed and which took effect by the end of March 2022.
Added
When CMS’s COVID-19 vaccine mandate was in effect, it required employees of certain Medicare-participating facilities and services including home health agencies and hospices to be vaccinated, which affected our businesses and employees during that time period.
Removed
The market for qualified individuals is highly competitive and finding and recruiting suitable replacements for our leaders may be difficult, time consuming and costly. Our hospice independent operating subsidiaries are subject to annual Medicare caps calculated by Medicare.
Added
If we do not operate in compliance with the extensive laws and regulations to which we are subject, or if these laws and regulations change, we could be required to make significant expenditures or change our operations to bring our operations into compliance.
Removed
Our business is dependent on the proper functioning and availability of our computer systems and networks. Our safety and security measures designed to protect our information systems, data and patient health information and disaster recovery plan may not prevent damage, interruption, or breach of our information systems and operations.
Added
Any economic downturn, deepening of an economic downturn, continued deficit spending by the Federal Government or state budget pressures may result in a reduction in payments and covered services. Adverse economic developments in the United States could lead to a reduction in Federal Government expenditures, including government-funded programs in which we participate, such as Medicare and Medicaid.
Removed
To the extent these laws do not already apply to our independent operating subsidiaries, ongoing rulemaking under section 1557 of the ACA seeks to impose existing civil rights laws onto the delivery of healthcare where it may not otherwise already apply, creating new compliance obligations to satisfy for our independent operating subsidiaries.
Added
In addition, if at any time the Federal Government is not able to meet its debt payments due to Congress failing to appropriate funds for the payment of these obligations, the Federal Government may stop or delay making payments on its obligations, including funding for government programs in which we participate, such as Medicare and Medicaid.
Removed
Required regulatory approvals could delay or prohibit transfers of our healthcare operations, which could result in periods in which we are unable to receive reimbursement for such properties. Our independent operating subsidiaries must be licensed under applicable state law and, depending upon the type of operation, certified or approved as providers under the Medicare and/or Medicaid programs.
Added
Failure of the government to make payments under these programs could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Removed
Additionally, federal and state mandates for vaccination of employees—or in some cases, state actions prohibiting vaccination—differ and may be difficult to comply with, and non-compliance may result in sanctions or other penalties assessed upon the Company.
Added
Further, any failure by the United States Congress to complete the federal budget process and fund government operations may result in a Federal Government shutdown, potentially causing us to incur substantial costs without reimbursement under the Medicare program, which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Removed
The Biden administration has announced that the PHE will conclude on May 11, 2023, which will require us to navigate the termination of federal and state waivers and flexibilities, which may be staggered and result in different or inconsistent termination dates of certain federal and state waivers flexibilities.
Added
As an example, the failure of the 2011 Joint Select Committee to meet its Deficit Reduction goal resulted in an automatic reduction in Medicare home health and hospice payments of 2% beginning April 1, 2013 ("sequestration" - suspended from May 1, 2020 through March 31, 2022; reinstated at 1% for the period April 1, 2022 through June 30, 2022 and at 2% thereafter).
Removed
Most of the legal and regulatory changes in response to COVID-19 were made without following typical regulatory or legislative processes and procedures, and were announced via website postings or fact sheets with limited notice and without full regulations or guidance in place.
Added
In addition, the Federal Reserve has increased interest rates repeatedly and significantly in recent quarters and may further increase or decrease interest rates in future quarters, impacting our cost of capital, our operating costs, and the economy as a whole.
Removed
While many of the changes are beneficial in that they reduce or eliminate statutory or regulatory requirements for healthcare providers during the COVID-19 public health emergency, we remain subject to the risk of inadvertent non-compliance due to the quantity, ambiguity and frequency of changes, including the expiration of certain waivers issued by the federal government and various state governments.
Added
Increased competition for, or a shortage of, nurses and other skilled personnel could increase our staffing and labor costs and negatively impact our operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table provides summary information regarding the locations of our home health and hospice agencies and our senior living communities and operational units as of December 31, 2022: State Home Health Agencies Hospice Agencies Senior Living Communities Senior Living Units Arizona 4 8 5 841 California 7 9 7 629 Colorado 6 1 — — Idaho 4 3 2 175 Iowa 1 1 — — Montana 1 1 — — Nevada 1 2 4 385 Oklahoma 2 1 — — Oregon 2 1 — — Texas 5 8 12 712 Utah 9 4 — — Washington 6 3 — — Wisconsin 2 1 19 758 Wyoming 1 1 — — Total 51 44 49 3,500
Biggest changeThe following table provides summary information regarding the locations of our home health and hospice agencies and our senior living communities and operational units as of December 31, 2023: State Home Health Agencies Hospice Agencies Senior Living Communities Senior Living Units Arizona 7 13 5 841 California 8 12 7 629 Colorado 9 2 — — Idaho 5 4 2 175 Montana 1 1 — — Nevada 1 2 4 385 Oklahoma 2 2 — — Oregon 2 1 — — Texas 5 9 12 712 Utah 7 4 — — Washington 5 4 — — Wisconsin 2 1 21 846 Wyoming 1 1 — — Total 55 56 51 3,588
We have one option to extend our lease term at this location for one additional five-year term. Home Health and Hospice Agencies and Senior Living Communities As of December 31, 2022, we operated 95 home health, hospice and home care agencies in Arizona, California, Colorado, Idaho, Iowa, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming.
We have one option to extend our lease term at this location for one additional five-year term. Home Health and Hospice Agencies and Senior Living Communities As of December 31, 2023, we operated 111 home health, hospice and home care agencies in Arizona, California, Colorado, Idaho, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming.
Office space is leased within geographies served by our agencies. As of December 31, 2022, we operated 49 affiliated senior living communities in Arizona, California, Idaho, Nevada, Texas, and Wisconsin, with 3,500 Senior Living units. We lease all of our communities through long-term, triple-net lease arrangements.
Office space is leased within geographies served by our agencies. 28 Table of Contents As of December 31, 2023, we operated 51 affiliated senior living communities in Arizona, California, Idaho, Nevada, Texas, and Wisconsin with 3,588 Senior Living units. We lease all of our communities, save one which we own, through long-term, triple-net lease arrangements.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+0 added−0 removed1 unchanged
Biggest changeHowever, the results of such matters cannot be predicted with certainty and we cannot assure you that the ultimate resolution of any legal or administrative proceeding or dispute will not have a material adverse effect on our business, financial condition, 27 Table of Contents results of operations and cash flows.
Biggest changeHowever, the results of such matters cannot be predicted with certainty and we cannot assure you that the ultimate resolution of any legal or administrative proceeding or dispute will not have a material adverse effect on our business, financial condition, results of operations and cash flows.
See Note 15, Commitments and Contingencies , to the Audited Consolidated Financial Statements for a description of claims and legal actions arising in the ordinary course of our business. Item 4. Mine Safety Disclosures None. Part II.
See Note 16, Commitments and Contingencies , to the Audited Consolidated Financial Statements for a description of claims and legal actions arising in the ordinary course of our business. Item 4. Mine Safety Disclosures None. Part II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+0 added−1 removed3 unchanged
Biggest changeThe timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The authorization expires on December 12, 2023, and may be suspended or discontinued at any time and does not obligate the company to acquire any amount of common stock.
Biggest changeThe timing and total amount of stock repurchases was dependent upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The authorization expired on December 12, 2023. No shares were repurchased during the year ended December 31, 2023 and 2022.
The graph below compares the cumulative total stockholder return on our common stock, $0.001 par value per share, during the period from the date of the Spin-Off on October 1, 2019, through December 31, 2022, with the cumulative total return on the NASDAQ composite index and an industry peer group over the same period (assuming the investment of $100 in our common stock, the NASDAQ composite index and the industry peer group on October 1, 2019 and the reinvestment of dividends).
The graph below compares the cumulative total stockholder return on our common stock, $0.001 par value per share, during the period from the date of the Spin-Off on October 1, 2019, through December 31, 2023, with the cumulative total return on the NASDAQ composite index and an industry peer group over the same period (assuming the investment of $100 in our common stock, the NASDAQ composite index and the industry peer group on October 1, 2019 and the reinvestment of dividends).
The peer group we selected is comprised of: Amedysis, Inc. (“AMED”), Addus Homecare Corporation (“ADUS”), Chemed Corporation (“CHE”), Encompass Health Corporation (“EHC”), LHC Group, Inc. (“LHCG”), Sonida Senior Living Inc., formerly known as Capital Senior Living Corporation (“SNDA”), and Brookdale Senior Living, Inc. (“BKD”).
The peer group we selected is comprised of: Amedysis, Inc. (“AMED”), Addus Homecare Corporation (“ADUS”), Chemed Corporation (“CHE”), Encompass Health Corporation (“EHC”), Sonida Senior Living Inc., formerly known as Capital Senior Living Corporation (“SNDA”), and Brookdale Senior Living, Inc. (“BKD”).
Issuer Repurchases of Equity Securities On December 12, 2022, the Board of the Directors of the Company approved a share repurchase program under which the Company may repurchase up to $1.0 million of its common stock.
Issuer Repurchases of Equity Securities On December 12, 2022, the Board of the Directors of the Company approved a share repurchase program under which the Company could repurchase up to $1.0 million of its common stock.
Under the share repurchase program, the Company may repurchase shares from time to time through open market purchases, including through the use of trading plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934.
Under the share repurchase program, the Company 29 Table of Contents could repurchase shares from time to time through open market purchases, including through the use of trading plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our Common stock has traded under the symbol “PNTG” on the NASDAQ Global Select Market since our Spin-Off on October 1, 2019. As of February 23, 2023, there are approximately 61 holders of record of our stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our Common stock trades under the symbol “PNTG” on the NASDAQ Global Select Market. As of February 28, 2024, there are approximately 69 holders of record of our stock.
No cash dividends have been paid on our common stock. 28 Table of Contents 10/1/2019 12/31/2019 6/30/2020 12/31/2020 6/30/2021 12/31/2021 6/30/2022 12/31/2022 PNTG 100 219 150 385 271 152 85 73 NASDAQ 100 113 127 163 183 199 139 132 Peer Group 100 113 116 147 134 120 105 111 Item 6. [Reserved]
No cash dividends have been paid on our common stock. 10/1/2019 12/2019 6/2020 12/2020 6/2021 12/2021 6/2022 12/2022 6/2023 12/2023 PNTG 100 219 150 385 271 152 85 73 81 92 NASDAQ 100 113 127 163 183 199 139 132 174 190 Peer Group 100 110 110 140 126 119 100 105 111 117 Item 6. [Reserved]
Removed
No shares were repurchased during the year ended December 31, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

58 edited+14 added−63 removed47 unchanged
Biggest changeAs of December 31, 2022, there were no recently issued accounting pronouncements that were expected to have an impact on the Company. 35 Table of Contents Results of Operations The following table sets forth details of our expenses and earnings as a percentage of total revenue for the periods indicated: Year Ended December 31, 2022 2021 2020 Total revenue 100.0 % 100.0 % 100.0 % Expense: Cost of services 79.6 79.7 75.9 Rent—cost of services 8.0 9.3 10.1 General and administrative expense 7.2 8.2 8.0 Depreciation and amortization 1.0 1.1 1.2 Loss on asset dispositions and impairment, net 1.5 0.6 — Total expenses 97.3 98.9 95.2 Income from operations 2.7 1.1 4.8 Other income (expense): Other income — — 0.1 Interest expense, net (0.8) (0.5) (0.3) Other expense, net (0.8) (0.5) (0.2) Income before provision for income taxes 1.9 0.6 4.6 Provision for income taxes 0.4 0.1 0.6 Net income 1.5 0.5 4.0 Less: net income (loss) attributable to noncontrolling interest (a) 0.1 (0.1) — Net income attributable to Pennant 1.4 % 0.6 % 4.0 % (a) Net loss attributable to noncontrolling interest for the year ended December 31, 2020 was less than 0.1% and thus not meaningful as a percentage of total revenue.
Biggest changeRecent Accounting Pronouncements Information concerning recently issued accounting pronouncements which are not yet effective is included in Note 2, Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements. 34 Table of Contents Results of Operations The following table sets forth details of our expenses and earnings as a percentage of total revenue for the periods indicated: Year Ended December 31, 2023 2022 2021 Total revenue 100.0 % 100.0 % 100.0 % Expense: Cost of services 80.4 79.6 79.7 Rent—cost of services 7.3 8.0 9.3 General and administrative expense 6.7 7.2 8.2 Depreciation and amortization 0.9 1.0 1.1 Loss on asset dispositions and impairment, net — 1.5 0.6 Total expenses 95.3 97.3 98.9 Income from operations 4.7 2.7 1.1 Other income (expense), net: Other income 0.1 — — Interest expense, net (1.2) (0.8) (0.5) Other expense, net (1.1) (0.8) (0.5) Income before provision for income taxes 3.6 1.9 0.6 Provision for income taxes 1.0 0.4 0.1 Net income 2.6 1.5 0.5 Less: net income (loss) attributable to noncontrolling interest 0.1 0.1 (0.1) Net income attributable to Pennant 2.5 % 1.4 % 0.6 % Year Ended December 31, 2023 2022 2021 (In thousands) Consolidated GAAP Financial Measures: Total revenue $ 544,891 $ 473,241 $ 439,694 Total expenses 519,722 460,502 434,999 Income from operations $ 25,169 $ 12,739 $ 4,695 35 Table of Contents The following table presents certain financial information regarding our reportable segments.
We find that Non-GAAP Financial Measures are useful for this purpose because they do not include such costs as interest expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the date of acquisition of a community or business, and the tax law of the state in which a business unit operates. 40 Table of Contents Non-GAAP Financial Measures have no standardized meaning defined by GAAP.
We find that Non-GAAP Financial Measures are useful for this purpose because they do not include such costs as interest expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the date of acquisition of a community or business, and the tax law of the state in which a business unit operates. 39 Table of Contents Non-GAAP Financial Measures have no standardized meaning defined by GAAP.
We operate in multiple lines of businesses including home health, hospice and senior living services across Arizona, California, Colorado, Idaho, Iowa, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming.
We operate in multiple lines of businesses including home health, hospice and senior living services across Arizona, California, Colorado, Idaho, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming.
The payment under the Medicare program is also adjusted for certain variables including, but not limited to: (a) a low utilization payment adjustment if the number of visits is below an established threshold that varies based on the diagnosis of a beneficiary; (b) a partial payment if the patient transferred to another provider or the Company received a patient from another provider before completing the period of care; (c) adjustment to the admission source of claim if it is determined that the patient had a qualifying stay in a post-acute care setting within 14 days prior to the start of a 30-day payment period; (d) the timing of the 30-day payment period provided to a patient in relation to the admission date, regardless of whether the same home health provider provided care for the entire series of episodes; (e) changes to the acuity of the patient during the previous 30-day period of care; (f) changes in the base payments established by the Medicare program; (g) adjustments to the base payments for case mix and geographic wages; and (h) recoveries of overpayments. 33 Table of Contents Hospice.
The PDGM payment under the Medicare program is also adjusted for certain variables including, but not limited to: (a) a low utilization payment adjustment if the number of visits is below an established threshold that varies based on the diagnosis of a beneficiary; (b) a partial payment if the patient transferred to another provider or the Company received a patient from another provider before completing the period of care; (c) adjustment to the admission source 32 Table of Contents of claim if it is determined that the patient had a qualifying stay in a post-acute care setting within 14 days prior to the start of a 30-day payment period; (d) the timing of the 30-day payment period provided to a patient in relation to the admission date, regardless of whether the same home health provider provided care for the entire series of episodes; (e) changes to the acuity of the patient during the previous 30-day period of care; (f) changes in the base payments established by the Medicare program; (g) adjustments to the base payments for case mix and geographic wages; and (h) recoveries of overpayments.
The average amount of revenue for each completed 60-day home health episode generated from patients who are receiving care under Medicare reimbursement programs. • Total hospice admissions . Total admissions of hospice patients, including new acquisitions, new admissions and recertifications. • Average hospice daily census .
The average amount of revenue for each completed 60-day home health episode generated from patients who are receiving care under Medicare reimbursement programs. 31 Table of Contents • Total hospice admissions . Total admissions of hospice patients, including new acquisitions, new admissions and recertifications. • Average hospice daily census .
Our cost of services represents the costs of operating our independent operating subsidiaries, which primarily consists of employee wages and related benefits, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients or residents.
Our cost of services represents the costs of operating our independent operating subsidiaries, which primarily consists of employee wages and related benefits, share-based compensation, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients or residents.
On an ongoing basis we review our judgments and estimates, including but not limited to those related to self-insurance reserves, revenue, leases, intangible assets, goodwill, and income taxes.
On an ongoing basis we review our judgments and estimates, including but not limited to those related to self-insurance reserves, revenue, and intangible assets and goodwill.
The 2021 amounts represents part of the costs incurred under the Transition Services Agreement. All amounts are included in general and administrative expense. Fees incurred under the Transition Services Agreement were $1,561, $3,124, and $5,536 for the year ended December 31, 2022, 2021 and 2020, respectively.
The 2021 amounts represents part of the costs incurred under the Transition Services Agreement. All amounts are included in general and administrative expense. Fees incurred under the Transition Services Agreement were $1,035, $1,561, and $3,124 for the year ended December 31, 2023, 2022 and 2021, respectively.
The 2021 amounts represents part of the costs incurred under the Transition Services Agreement. All amounts are included in general and administrative expense. Fees incurred under the Transition Services Agreement were $1,561, $3,124, and $5,536 for the year ended December 31, 2022, 2021 and 2020, respectively.
The 2021 amounts represents part of the costs incurred under the Transition Services Agreement. All amounts are included in general and administrative expense. Fees incurred under the Transition Services Agreement were $1,035, $1,561, and $3,124 for the year ended December 31, 2023, 2022 and 2021, respectively.
The preparation of these financial statements and related disclosures requires us to make judgments, 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 34 Table of Contents statements and the reported amounts of revenue and expenses during the reporting period.
The preparation of these financial statements and related disclosures requires us to make judgments, 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 revenue and expenses during the reporting periods.
The following table summarizes our senior living statistics for the periods indicated: Year Ended December 31, 2022 2021 Occupancy 75.7 % 72.7 % Average monthly revenue per occupied unit $ 3,516 $ 3,207 Revenue Sources Home Health and Hospice Services Home Health . We derive the majority of our home health revenue from Medicare and managed care.
The following table summarizes our senior living statistics for the periods indicated: Year Ended December 31, 2023 2022 Occupancy 78.5 % 75.7 % Average monthly revenue per occupied unit $ 3,969 $ 3,516 Revenue Sources Home Health and Hospice Services Home Health . We derive the majority of our home health revenue from Medicare and managed care.
Revenue grew due to an increase in all key performance indicators including an increase in total home health admissions of 8.2%, an increase in Medicare home health admissions of 7.4%, an increase in average Medicare revenue per 60-day completed episode of 3.0%, an increase of 6.4% in total hospice admissions, an increase of 2.3% in hospice revenue per day, and an increase of 0.2% in hospice average daily census.
Revenue grew due to an increase in all key performance indicators including an increase in total home health admissions of 7.6%, an increase in Medicare home health admissions of 4.0%, an increase in average Medicare revenue per 60-day completed episode of 0.1%, an increase of 6.3% in total hospice admissions, an increase of 3.9% in hospice Medicare revenue per day, and an increase of 13.5% in hospice average daily census.
We calculate Consolidated Adjusted EBITDA by adjusting Consolidated EBITDA to exclude the effects of non-core business items, which for the reported periods includes, to the extent applicable: • costs at start-up operations; • share-based compensation expense; • acquisition related costs and credit allowances; 41 Table of Contents • redundant or nonrecurring costs associated with the Transition Services Agreement (as defined in Note 3, Transactions with Ensign ); • loss related to senior living operations transferred to Ensign; • unusual or non-recurring charges; and • net income attributable to noncontrolling interest.
We calculate Consolidated Adjusted EBITDA by adjusting Consolidated EBITDA to exclude the effects of non-core business items, which for the reported periods includes, to the extent applicable: • costs at start-up operations; • share-based compensation expense; • acquisition related costs and credit allowances; 40 Table of Contents • redundant or nonrecurring costs associated with the Transition Services Agreement (as defined in Note 3, Transactions with Ensign ); • costs associated with transitioning operations ; and • unusual or non-recurring charges.
Our subsidiaries lease and operate but do not own the underlying real estate at our operations, and these amounts do not include taxes, insurance, impounds, capital reserves or other charges payable under the applicable lease agreements. General and Administrative Expense .
Our subsidiaries lease and operate but do not own the underlying real estate at our operations, and these amounts do not include taxes, insurance, impounds, capital reserves or other charges payable under the applicable lease agreements, which are included in cost of services and general and administrative expense. General and Administrative Expense .
Financial covenants require compliance with certain levels of leverage ratios that impact the amount of interest. As of December 31, 2022, we were in compliance with all covenants. As of December 31, 2022 we had $2.1 million of cash and $81.3 million of available borrowing capacity on our Revolving Credit Facility.
Financial covenants require compliance with certain levels of leverage ratios that impact the amount of interest. As of December 31, 2023, we were in compliance with all covenants. As of December 31, 2023 we had $6.1 million of cash and $80.8 million of available borrowing capacity on our Revolving Credit Facility.
Our net cash provided by financing activities decreased by approximately $31.4 million for the year ended December 31, 2022 when compared to the year ended December 31, 2021 primarily due to a decrease in our net borrowings.
Our net cash provided by financing activities decreased by $11.0 million for the year ended December 31, 2023 when compared to the year ended December 31, 2022 primarily due to a decrease in our net borrowings.
On January 27, 2022, affiliates of the Company, entered into certain operations transfer agreements (collectively, the “Transfer Agreements”) with affiliates of Ensign, providing for the transfer of the operations of certain senior living communities (the “Transaction”) from affiliates of the Company to affiliates of Ensign.
During January 2022, affiliates of the Company entered into Transfer Agreements with affiliates of Ensign, providing for the transfer of the operations of certain senior living communities (the “Transaction”) from affiliates of the Company to affiliates of Ensign.
The average number of patients who are receiving hospice care during any measurement period divided by the number of days during such measurement period. • Hospice Medicare revenue per day .
The average number of patients who are receiving hospice care during any measurement period divided by the number of days during such measurement period. • Hospice Medicare revenue per day . The average daily Medicare revenue recorded during any measurement period for services provided to hospice patients.
We believe that our existing cash, cash generated through operations, and access to available borrowing capacity under our existing Credit Agreement, will be sufficient to provide adequate liquidity for the next twelve months for both our operating activities and opportunities for acquisition growth. 45 Table of Contents The following table presents selected data from our statement of cash flows for the periods presented: Year Ended December 31, 2022 2021 (In thousands) Net cash provided by (used in) operating activities $ 9,044 $ (18,223) Net cash used in investing activities (24,239) (20,120) Net cash provided by financing activities 12,084 43,490 Net change in cash (3,111) 5,147 Cash at beginning of year 5,190 43 Cash at end of year $ 2,079 $ 5,190 Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Our net cash from operating activities for the year ended December 31, 2022 increased by $27.3 million when compared to the year ended December 31, 2021.
We believe that our existing cash, cash generated through operations, and access to available borrowing capacity under our Credit Agreement, will be sufficient to provide adequate liquidity for the next twelve months for both our operating activities and opportunities for acquisition growth. 44 Table of Contents The following table presents selected data from our statement of cash flows for the periods presented: Year Ended December 31, 2023 2022 (In thousands) Net cash provided by operating activities $ 33,090 $ 9,044 Net cash used in investing activities (30,222) (24,239) Net cash provided by financing activities 1,112 12,084 Net change in cash 3,980 (3,111) Cash at beginning of year 2,079 5,190 Cash at end of year $ 6,059 $ 2,079 Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 Our net cash flow from operating activities for the year ended December 31, 2023 increased by $24.0 million when compared to the year ended December 31, 2022.
(g) On January 27, 2022, affiliates of the Company, entered into certain operations transfer agreements (collectively, the “Transfer Agreements”) with affiliates of Ensign, providing for the transfer of the operations of certain senior living communities (the “Transaction”) from affiliates of the Company to affiliates of Ensign.
During January 2022, affiliates of the Company entered into Transfer Agreements with affiliates of Ensign, providing for the transfer of the operations of certain senior living communities (the “Transaction”) from affiliates of the Company to affiliates of Ensign.
During 2022, we expanded our operations with the addition of three home health agencies, four hospice agencies and one senior living community. A subsidiary of the Company entered into a separate operations transfer agreement with the prior operator of each acquired operation as part of each transaction. Other Activities.
During 2023, we expanded our operations with the addition of three home health agencies, eight hospice agencies, two home care agencies, and two senior living communities. A subsidiary of the Company entered into a separate operations transfer agreement with the prior operator of each acquired operation as part of each transaction.
The following are the four levels of care provided under the hospice benefit: • Routine Home Care (“RHC”). Care that is not classified under any of the other levels of care, such as the work of nurses, social workers or home health aides. • General Inpatient Care.
Care that is not classified under any of the other levels of care, such as the work of nurses, social workers or home health aides. • General Inpatient Care.
No shares were repurchased during the year ended December 31, 2022. Key Performance Indicators We manage the fiscal aspects of our business by monitoring key performance indicators that affect our financial performance. These indicators and their definitions include the following: Home Health and Hospice Services • Total home health admissions .
Key Performance Indicators We manage the fiscal aspects of our business by monitoring key performance indicators that affect our financial performance. These indicators and their definitions include the following: Home Health and Hospice Services • Total home health admissions .
The improvement in these metrics resulted in net organic revenue growth of $29.5 million for the year ended December 31, 2022. Growth was also driven by the acquisition of seven home health and hospice operations, between December 31, 2021 and December 31, 2022, resulting in an increase in revenue of $3.2 million or 1.0% overall.
The improvement in these metrics resulted in net organic revenue growth of $40.8 million for the year ended December 31, 2023. Growth was also driven by the acquisition of 11 home health, home care, and hospice operations, between December 31, 2022 and December 31, 2023, resulting in an increase in revenue of $11.4 million, or 3.3% overall.
General and administrative expenses are not allocated to the reportable segments and are included in “All Other”: Home Health and Hospice Services Senior Living Services All Other Total (In thousands) Segment GAAP Financial Measures: Year Ended December 31, 2022 Revenue $ 342,249 $ 130,992 $ — $ 473,241 Segment Adjusted EBITDAR from Operations $ 61,827 $ 37,563 $ (31,435) $ 67,955 Year Ended December 31, 2021 Revenue $ 309,570 $ 130,124 $ — $ 439,694 Segment Adjusted EBITDAR from Operations $ 55,565 $ 37,517 $ (26,208) $ 66,874 Year Ended December 31, 2020 Revenue $ 253,659 $ 137,294 $ — $ 390,953 Segment Adjusted EBITDAR from Operations $ 49,501 $ 48,309 $ (22,762) $ 75,048 The table below provides a reconciliation of Segment Adjusted EBITDAR from Operations above to income from operations: Year Ended December 31, 2022 2021 2020 (In thousands) Segment Adjusted EBITDAR from Operations (a) $ 67,955 $ 66,874 $ 75,048 Less: Depreciation and amortization 4,900 4,784 4,675 Rent—cost of services 38,018 40,863 39,191 Other (expense) income (31) (24) 225 Adjustments to Segment EBITDAR from Operations: Less: Costs at start-up operations (b) 1,435 1,045 1,787 Share-based compensation expense (c) 3,363 10,040 8,335 Acquisition related costs and credit allowances (d) 731 80 99 Transition services costs (e) 77 2,008 1,181 COVID-19 related costs and supplies (f) — — 447 Loss related to senior living operations transferred to Ensign (g) 6,103 2,835 — Unusual or non-recurring charges (h) 1,220 — — Add: Net income (loss) attributable to noncontrolling interest 600 (548) (191) Income from operations $ 12,739 $ 4,695 $ 18,917 37 Table of Contents (a) Segment Adjusted EBITDAR from Operations is net income attributable to the Company's reportable segments excluding interest expense, provision for income taxes, depreciation and amortization expense, rent, and, in order to view the operations performance on a comparable basis from period to period, certain adjustments including: (1) costs at start-up operations, (2) share-based compensation, (3) acquisition related costs and credit allowances, (4) redundant and nonrecurring costs associated with the Transition Services Agreement, (5) loss related to senior living operations transferred to Ensign, (6) unusual or non-recurring charges, and (7) net income (loss) attributable to noncontrolling interest.
General and administrative expenses are not allocated to the reportable segments and are included in “All Other”: Home Health and Hospice Services Senior Living Services All Other Total (In thousands) Segment GAAP Financial Measures: Year Ended December 31, 2023 Revenue $ 394,464 $ 150,427 $ — $ 544,891 Segment Adjusted EBITDAR from Operations $ 65,606 $ 45,294 $ (31,704) $ 79,196 Year Ended December 31, 2022 Revenue $ 342,249 $ 130,992 $ — $ 473,241 Segment Adjusted EBITDAR from Operations $ 61,827 $ 37,563 $ (31,435) $ 67,955 Year Ended December 31, 2021 Revenue $ 309,570 $ 130,124 $ — $ 439,694 Segment Adjusted EBITDAR from Operations $ 55,565 $ 37,517 $ (26,208) $ 66,874 The table below provides a reconciliation of Segment Adjusted EBITDAR from Operations above to income from operations: Year Ended December 31, 2023 2022 2021 (In thousands) Segment Adjusted EBITDAR from Operations (a) $ 79,196 $ 67,955 $ 66,874 Less: Depreciation and amortization 5,130 4,900 4,784 Rent—cost of services 39,759 38,018 40,863 Other (expense) income 339 (31) (24) Adjustments to Segment EBITDAR from Operations: Less: Costs at start-up operations (b) 102 1,435 1,045 Share-based compensation expense (c) 5,565 3,363 10,040 Acquisition related costs and credit allowances (d) 476 731 80 Transition services costs (e) — — 2,008 Costs associated with transitioning operations (f) 612 6,103 2,835 Unusual or non-recurring charges (g) 2,575 1,297 — Add: Net income (loss) attributable to noncontrolling interest 531 600 (548) Income from operations $ 25,169 $ 12,739 $ 4,695 36 Table of Contents (a) Segment Adjusted EBITDAR from Operations is net income attributable to the Company's reportable segments excluding interest expense, provision for income taxes, depreciation and amortization expense, rent, and, in order to view the operations performance on a comparable basis from period to period, certain adjustments including: (1) costs at start-up operations, (2) share-based compensation expense, (3) acquisition related costs and credit allowances, (4) transition services costs, (5) costs associated with transitioning operations, (6) unusual, non-recurring or redundant charges, and (7) net income (loss) attributable to noncontrolling interest.
Refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies , within the Consolidated Financial Statements for further information on our critical accounting estimates and policies, which are as follows: • Self-insurance reserves - The valuation methods and assumptions used in estimating costs up to retention amounts to settle open claims of insureds and an estimate of the cost of insured claims up to retention amounts that have been incurred but not reported; • Revenue recognition - The amounts owed by private pay individuals for services and estimate of variable considerations to arrive at the transaction price, including methods and assumptions, used to determine settlements with Medicare and Medicaid adjustments due to audits and reviews; • Leases - We use our estimated incremental borrowing rate based on the information available at lease commencement date in determining the present value of future lease payments; • Acquisition accountin g - The assumptions used to allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions; and • Income taxes - The estimation of valuation allowance or the need for and magnitude of liabilities for uncertain tax position.
Refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies , within the Consolidated Financial Statements for further information on our critical accounting estimates and policies, which are as follows: • Self-insurance reserves - The valuation methods and assumptions used in estimating costs up to retention amounts to settle open claims of insureds and an estimate of the cost of insured claims up to retention amounts that have been incurred but not reported; • Revenue recognition - The amounts owed by private pay individuals for services and estimate of variable considerations to arrive at the transaction price, including methods and assumptions, used to determine settlements with Medicare and Medicaid adjustments due to audits and reviews; and • Acquisition accounting and goodwill - The assumptions used to allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions, and the review of goodwill for impairment at the Company’s annual impairment test date or upon the occurrence of a triggering event.
Performance and Valuation Measures: Year Ended December 31, 2022 2021 2020 (In thousands) Consolidated Non-GAAP Financial Measures: Performance Metrics Consolidated EBITDA $ 17,008 $ 10,003 $ 24,008 Consolidated Adjusted EBITDA $ 31,545 $ 26,407 $ 36,080 Valuation Metric Consolidated Adjusted EBITDAR $ 67,955 Year Ended December 31, 2022 2021 2020 (In thousands) Segment Non-GAAP Measures: (a) Segment Adjusted EBITDA from Operations Home health and hospice services $ 56,977 $ 51,045 $ 46,015 Senior living services $ 6,003 $ 1,570 $ 12,827 (a) General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss. 38 Table of Contents The table below reconciles Consolidated Net Income to Consolidated EBITDA, Consolidated Adjusted EBITDA and Consolidated Adjusted EBITDAR for the periods presented: Year Ended December 31, 2022 2021 2020 (In thousands) Consolidated Net income $ 7,243 $ 2,148 $ 15,553 Less: Net income (loss) attributable to noncontrolling interest 600 (548) (191) Add: Provision for income taxes 1,649 582 2,350 Net interest expense 3,816 1,941 1,239 Depreciation and amortization 4,900 4,784 4,675 Consolidated EBITDA 17,008 10,003 24,008 Adjustments to Consolidated EBITDA Add: Costs at start-up operations (a) 1,435 1,045 1,787 Share-based compensation expense (b) 3,363 10,040 8,335 Acquisition related costs and credit allowances (c) 731 80 99 Transition services costs (d) 77 2,008 1,181 Net COVID-19 related costs (e) — — 447 Loss related to senior living operations transferred to Ensign (f) 6,103 2,835 — Unusual or non-recurring charges (g) 1,220 — — Rent related to items (a) and (f) above 1,608 396 223 Consolidated Adjusted EBITDA 31,545 26,407 36,080 Rent—cost of services 38,018 40,863 39,191 Rent related to items (a) and (f) above (1,608) (396) (223) Adjusted rent—cost of services 36,410 40,467 38,968 Consolidated Adjusted EBITDAR $ 67,955 (a) Represents results related to start-up operations.
Performance and Valuation Measures: Year Ended December 31, 2023 2022 2021 (In thousands) Consolidated Non-GAAP Financial Measures: Performance Metrics Consolidated EBITDA $ 30,107 $ 17,008 $ 10,003 Consolidated Adjusted EBITDA $ 40,716 $ 31,545 $ 26,407 Valuation Metric Consolidated Adjusted EBITDAR $ 79,196 Year Ended December 31, 2023 2022 2021 (In thousands) Segment Non-GAAP Measures: (a) Segment Adjusted EBITDA from Operations Home health and hospice services $ 60,128 $ 56,977 $ 51,045 Senior living services $ 12,293 $ 6,003 $ 1,570 (a) General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss. 37 Table of Contents The table below reconciles Consolidated Net Income to Consolidated EBITDA, Consolidated Adjusted EBITDA and Consolidated Adjusted EBITDAR for the periods presented: Year Ended December 31, 2023 2022 2021 (In thousands) Consolidated Net income $ 13,910 $ 7,243 $ 2,148 Less: Net income (loss) attributable to noncontrolling interest 531 600 (548) Add: Provision for income taxes 5,674 1,649 582 Net interest expense 5,924 3,816 1,941 Depreciation and amortization 5,130 4,900 4,784 Consolidated EBITDA 30,107 17,008 10,003 Adjustments to Consolidated EBITDA Add: Costs at start-up operations (a) 102 1,435 1,045 Share-based compensation expense (b) 5,565 3,363 10,040 Acquisition related costs and credit allowances (c) 476 731 80 Transition services costs (d) — — 2,008 Costs associated with transitioning operations (e) 612 6,103 2,835 Unusual or non-recurring charges (f) 2,575 1,297 — Rent related to items (a) and (e) above 1,279 1,608 396 Consolidated Adjusted EBITDA 40,716 31,545 26,407 Rent—cost of services 39,759 38,018 40,863 Rent related to items (a) and (e) above (1,279) (1,608) (396) Adjusted rent—cost of services 38,480 36,410 40,467 Consolidated Adjusted EBITDAR $ 79,196 (a) Represents results related to start-up operations.
As of December 31, 2022, our home health and hospice business provided home health, hospice and home care services from 95 agencies operating across 14 states, and our senior living business operated 49 senior living communities throughout six states.
As of December 31, 2023, our home health and hospice business provided home health, hospice and 30 Table of Contents home care services from 111 agencies operating across 13 states, and our senior living business operated 51 senior living communities throughout six states.
Senior Living Services Year Ended December 31, 2022 2021 Change % Change Revenue (in thousands) $ 130,992 $ 130,124 $ 868 0.7 % Number of communities at period end 49 54 (5) (9.3) % Occupancy 75.7 % 72.7 % 3.0 % Average monthly revenue per occupied unit $ 3,516 $ 3,207 $ 309 9.6 % Senior living revenue increased $0.9 million, or 0.7%, for the year ended December 31, 2022 when compared to the same period in the prior year primarily due to a 9.6% increase in average monthly revenue per occupied unit and a 3.0% increase in occupancy rate between December 31, 2021 and December 31, 2022.
Senior Living Services Year Ended December 31, 2023 2022 Change % Change Revenue (in thousands) $ 150,427 $ 130,992 $ 19,435 14.8 % Number of communities at period end 51 49 2 4.1 Occupancy 78.5 % 75.7 % 2.8 % Average monthly revenue per occupied unit $ 3,969 $ 3,516 $ 453 12.9 % Senior living revenue increased $19.4 million, or 14.8%, for the year ended December 31, 2023 when compared to the same period in the prior year primarily due to a 12.9% increase in average monthly revenue per occupied unit and a 2.8% increase in occupancy rate between December 31, 2022 and December 31, 2023.
Cost of services as a percentage of revenue decreased by 0.1% from 79.7% to 79.6% over the same time period. The increase in the amount cost of services was driven primarily by volume of services provided.
The increase in the amount of cost of services was driven primarily by volume of services provided. Cost of services as a percentage of revenue increased by 80 basis points from 79.6% to 80.4% over the same time period. The increase was driven primarily by increased wages and benefits.
These Non-GAAP Financial Measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. We strongly urge you to review the reconciliation of income from operations to the Non-GAAP Financial Measures in the table presented above, along with our Financial Statements and related notes included elsewhere in this report.
We strongly urge you to review the reconciliation of income from operations to the Non-GAAP Financial Measures in the table presented above, along with our Consolidated Financial Statements and related notes included elsewhere in this report.
Property and equipment are recorded at their original historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets (ranging from three to 40 years). Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term.
Property and equipment are initially recorded at their historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets (ranging from one to 40 years).
Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Revenue Year Ended December 31, 2022 2021 Revenue Dollars Revenue Percentage Revenue Dollars Revenue Percentage (In thousands) Home health and hospice services Home health $ 159,858 33.8 % $ 136,505 31.0 % Hospice 160,520 33.9 151,612 34.5 Home care and other (a) 21,871 4.6 21,453 4.9 Total home health and hospice services 342,249 72.3 309,570 70.4 Senior living services 130,992 27.7 130,124 29.6 Total revenue $ 473,241 100.0 % $ 439,694 100.0 % (a) Home care and other revenue is included with home health revenue in other disclosures in this report.
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 Revenue Year Ended December 31, 2023 2022 Revenue Dollars Revenue Percentage Revenue Dollars Revenue Percentage (In thousands) Home health and hospice services Home health $ 175,044 32.1 % $ 159,858 33.8 % Hospice 194,627 35.7 160,520 33.9 Home care and other (a) 24,793 4.6 21,871 4.6 Total home health and hospice services 394,464 72.4 342,249 72.3 Senior living services 150,427 27.6 130,992 27.7 Total revenue $ 544,891 100.0 % $ 473,241 100.0 % (a) Home care and other revenue is included with home health revenue in other disclosures in this report.
The following table summarizes our affiliated home health and hospice agencies and senior living communities as of: 2014 2015 2016 2017 2018 2019 2020 2021 2022 Home health and hospice agencies 25 32 39 46 54 63 76 88 95 Senior living communities 15 36 36 43 50 52 54 54 49 Senior living units 1,587 3,184 3,184 3,434 3,820 3,963 4,127 4127 3,500 Total number of home health, hospice, and senior living operations 40 68 75 89 104 115 130 142 144 COVID-19 We have been, and we expect to continue to be, impacted by several factors related to the viral disease known as COVID-19 that may cause actual results to differ from our historical results or current expectations.
The following table summarizes our affiliated home health and hospice agencies and senior living communities as of: 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Home health and hospice agencies 25 32 39 46 54 63 76 88 95 111 Senior living communities 15 36 36 43 50 52 54 54 49 51 Senior living units 1,587 3,184 3,184 3,434 3,820 3,963 4,127 4,127 3,500 3,588 Total number of home health, hospice, and senior living operations 40 68 75 89 104 115 130 142 144 162 Recent Activities Acquisitions.
The average daily Medicare revenue recorded during any measurement period for services provided to hospice patients. 32 Table of Contents The following table summarizes our overall home health and hospice statistics for the periods indicated: Year Ended December 31, 2022 2021 Home health services: Total home health admissions 40,436 37,366 Total Medicare home health admissions 18,641 17,356 Average Medicare revenue per 60-day completed episode (a) $ 3,545 $ 3,443 Hospice services: Total hospice admissions 9,166 8,613 Average hospice daily census 2,296 2,291 Hospice Medicare revenue per day $ 178 $ 174 (a) The year to date average for Medicare revenue per 60-day completed episode includes post period claim adjustments for prior periods.
The following table summarizes our overall home health and hospice services statistics for the periods indicated: Year Ended December 31, 2023 2022 Home health services: Total home health admissions 43,508 40,436 Total Medicare home health admissions 19,389 18,641 Average Medicare revenue per completed 60-day home health episode (a) $ 3,533 $ 3,531 Hospice services: Total hospice admissions 9,746 9,166 Average hospice daily census 2,607 2,296 Hospice Medicare revenue per day $ 185 $ 178 (a) The year to date average for Medicare revenue per 60-day completed episode includes post period claim adjustments for prior periods.
The closing of the Transaction was completed in two phases with the transfer of two operations on March 1, 2022 and the remainder transferred on April 1, 2022.
The closing of the Transaction was completed in two phases with the transfer of two operations on March 1, 2022 and the remainder transferred on April 1, 2022. The amount above represents the net impact on revenue and cost of service attributable to all of the transferred entities.
The Revolving Credit Facility is not subject to interim amortization and the Company will not be required to repay any loans under the Revolving Credit Facility prior to maturity in 2026.
The Revolving Credit Facility is not subject to interim amortization and the Company will not be required to repay any loans under the Revolving Credit Facility prior to maturity in 2026, except that the loans may become due immediately if the Company triggers an event of default under the terms of the Credit Agreement.
(g) Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees including $958 in general and administrative expenses and $262 in cost of services for the year ended December 31, 2022. 39 Table of Contents The table below reconciles Segment Adjusted EBITDAR from Operations to Segment Adjusted EBITDA from Operations for the periods presented: Year Ended December 31, Home Health and Hospice Senior Living 2022 2021 2020 2022 2021 2020 (In thousands) Segment Adjusted EBITDAR from Operations $ 61,827 $ 55,565 $ 49,501 $ 37,563 $ 37,517 $ 48,309 Less: Rent—cost of services 5,060 4,906 3,629 32,958 35,957 35,562 Rent related to start-up operations (210) (386) (143) (1,398) (10) (80) Segment Adjusted EBITDA from Operations $ 56,977 $ 51,045 $ 46,015 $ 6,003 $ 1,570 $ 12,827 The following discussion includes references to certain performance and valuation measures, which are non-GAAP financial measures, including Consolidated EBITDA, Consolidated Adjusted EBITDA, Segment Adjusted EBITDA from Operations, and Consolidated Adjusted EBITDAR (collectively, “Non-GAAP Financial Measures”).
The amounts reported for the year ended December 31, 2022 include certain costs identified as redundant or non-recurring incurred by the Company for services provided by Ensign under the Transition Services Agreement, and were included in general and administrative expense. 38 Table of Contents The table below reconciles Segment Adjusted EBITDAR from Operations to Segment Adjusted EBITDA from Operations for the periods presented: Year Ended December 31, Home Health and Hospice Senior Living 2023 2022 2021 2023 2022 2021 (In thousands) Segment Adjusted EBITDAR from Operations $ 65,606 $ 61,827 $ 55,565 $ 45,294 $ 37,563 $ 37,517 Less: Rent—cost of services 5,791 5,060 4,906 33,967 32,958 35,957 Rent related to start-up and transitioning operations (313) (210) (386) (966) (1,398) (10) Segment Adjusted EBITDA from Operations $ 60,128 $ 56,977 $ 51,045 $ 12,293 $ 6,003 $ 1,570 The following discussion includes references to certain performance and valuation measures, which are non-GAAP financial measures, including Consolidated EBITDA, Consolidated Adjusted EBITDA, Segment Adjusted EBITDA from Operations, and Consolidated Adjusted EBITDAR (collectively, “Non-GAAP Financial Measures”).
Growth in revenue was also driven by the acquisition of one senior living community, between December 31, 2021 and December 31, 2022, resulting in an increase of $0.9 million or 0.7% overall. 43 Table of Contents Cost of Services The following table sets forth total cost of services by each of our reportable segments for the periods indicated: Year Ended December 31, 2022 2021 Change % Change (In thousands) Home Health and Hospice $ 282,988 $ 257,251 $ 25,737 10.0 % Senior Living 93,650 92,985 665 0.7 Total cost of services $ 376,638 $ 350,236 $ 26,402 7.5 % Consolidated cost of services increased $26.4 million, or 7.5%, for the year ended December 31, 2022 when compared to the year ended December 31, 2021.
Growth in revenue was also driven by the acquisition of two senior living communities, between December 31, 2022 and December 31, 2023, resulting in an increase of $1.9 million, or 1.4% overall. 42 Table of Contents Cost of Services The following table sets forth total cost of services by each of our reportable segments for the periods indicated: Year Ended December 31, 2023 2022 Change % Change (In thousands) Home Health and Hospice $ 331,844 $ 282,988 $ 48,856 17.3 % Senior Living 106,252 93,650 12,602 13.5 Total cost of services $ 438,096 $ 376,638 $ 61,458 16.3 % Consolidated cost of services increased $61.5 million, or 16.3%, for the year ended December 31, 2023 when compared to the year ended December 31, 2022.
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term. 33 Table of Contents Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
Home Health and Hospice Services Year Ended December 31, 2022 2021 Change % Change (In thousands) Cost of service $ 282,988 $ 257,251 $ 25,737 10.0 % Cost of services as a percentage of revenue 82.7 % 83.1 % (0.4) % Cost of services related to our home health and hospice services segment increased $25.7 million, or 10.0%, primarily due to increased volume of services provided.
Home Health and Hospice Services Year Ended December 31, 2023 2022 Change % Change (In thousands) Cost of service $ 331,844 $ 282,988 $ 48,856 17.3 % Cost of services as a percentage of revenue 84.1 % 82.7 % 1.4 % Cost of services related to our Home Health and Hospice services segment increased $48.9 million, or 17.3%, primarily due to increased volume of services from the growth in admissions and average daily census.
Our general and administrative expense decreased $2.3 million or 6.3% from $36.3 million to $34.0 million and as a percent of revenue from 8.2% to 7.2% for the year ended December 31, 2022 compared to the year ended December 31, 2021.
General and administrative expense increased $2.7 million, or 7.9%, from $34.0 million to $36.7 million for the year ended December 31, 2023 when compared to the year ended December 31, 2022.
Our consolidated revenue increased $33.5 million, or 7.6%, driven by the net organic growth of existing operations across all segments of $29.4 million or 6.7% as well as increased revenue from acquired operations of $4.1 million or 0.9% during the year ended December 31, 2022. 42 Table of Contents Home Health and Hospice Services Year Ended December 31, 2022 2021 Change % Change (In thousands) Home health and hospice revenue Home health services $ 159,858 $ 136,505 $ 23,353 17.1 % Hospice services 160,520 151,612 8,908 5.9 Home care and other 21,871 21,453 418 1.9 Total home health and hospice revenue $ 342,249 $ 309,570 $ 32,679 10.6 % Year Ended December 31, 2022 2021 Change % Change Home health services: Total home health admissions 40,436 37,366 3,070 8.2 % Total Medicare home health admissions 18,641 17,356 1,285 7.4 Average Medicare revenue per 60-day completed episode (a) $ 3,545 $ 3,443 $ 102 3.0 Hospice services: Total hospice admissions 9,166 8,613 553 6.4 Average daily census 2,296 2,291 5 0.2 Hospice Medicare revenue per day $ 178 $ 174 $ 4 2.3 Number of home health and hospice agencies at period end 95 88 7 8.0 % (a) The year to date average for Medicare revenue per 60-day completed episode includes post period claim adjustments for prior periods.
Our consolidated revenue increased $71.7 million, or 15.1%, driven by the net organic growth of existing operations across all segments of $58.4 million or 12.3% as well as increased revenue from acquired operations of $13.3 million, or 2.8%, during the year ended December 31, 2023. 41 Table of Contents Home Health and Hospice Services Year Ended December 31, 2023 2022 Change % Change (In thousands) Home health and hospice revenue Home health services $ 175,044 $ 159,858 $ 15,186 9.5 % Hospice services 194,627 160,520 34,107 21.2 Home care and other 24,793 21,871 2,922 13.4 Total home health and hospice revenue $ 394,464 $ 342,249 $ 52,215 15.3 % Year Ended December 31, 2023 2022 Change % Change Home health services: Total home health admissions 43,508 40,436 3,072 7.6 % Total Medicare home health admissions 19,389 18,641 748 4.0 Average Medicare revenue per 60-day completed episode (a) $ 3,533 $ 3,531 $ 2 0.1 Hospice services: Total hospice admissions 9,746 9,166 580 6.3 Average daily census 2,607 2,296 311 13.5 Hospice Medicare revenue per day $ 185 $ 178 $ 7 3.9 Number of home health and hospice agencies at period end 111 95 16 16.8 % (a) The year to date average for Medicare revenue per 60-day completed episode includes post period claim adjustments for prior periods.
The Medicare payment is adjusted for differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk.
The Medicare payment is adjusted for differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Net service revenue is recognized in accordance with PDGM methodology. Under PDGM, Medicare provides agencies with payments for each 30-day period of care provided to beneficiaries.
Comparison of Prior Year Information For a comparison of our results of operations of the fiscal year ended December 31, 2021 as compared to the year ended December 31, 2020 refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation on Form 10-K filed with the SEC on February 28, 2022.
See Note 14 , Income Taxes , to the Consolidated Financial Statements included elsewhere in this report filed on Form 10-K for further discussion. Comparison of Prior Year Information For a comparison of our results of operations of the fiscal year ended December 31, 2022 as compared to the year ended December 31, 2021 refer to Item 7.
Senior Living Services Year Ended December 31, 2022 2021 Change % Change (In thousands) Cost of service $ 93,650 $ 92,985 $ 665 0.7 % Cost of services as a percentage of revenue 71.5 % 71.5 % — % Cost of services related to our senior living services segment increased $0.7 million, or 0.7%, for the year ended December 31, 2022 when compared to the year ended December 31, 2021.
Senior Living Services Year Ended December 31, 2023 2022 Change % Change (In thousands) Cost of service $ 106,252 $ 93,650 $ 12,602 13.5 % Cost of services as a percentage of revenue 70.6 % 71.5 % (0.9) % Cost of services related to our Senior Living services segment increased $12.6 million, or 13.5%, during the year ended December 31, 2023 in response to higher occupancy and wage rate increases.
The increase in funds used for investing activities was primarily due to an increase of $7.9 million in cash paid for property and equipment, offset by a decrease of $3.4 million in cash paid for acquisitions during the year ended December 31, 2022.
Our net cash used in investing activities for the year ended December 31, 2023 increased by $6.0 million compared to the year ended December 31, 2022, primarily driven by a $11.9 million increase in business acquisitions and other assets, offset by a $6.1 million decrease in purchases of property and equipment during the year ended December 31, 2023 compared to the year ended December 31, 2022.
We derive the majority of our hospice business revenue from Medicare reimbursement. The estimated payment rates are calculated as daily rates for each of the levels of care we deliver. Rates are set based on specific levels of care, are adjusted by a wage index to reflect healthcare labor costs across the country and are established annually through federal legislation.
Rates are set based on specific levels of care, are adjusted by a wage index to reflect healthcare labor costs across the country and are established annually through federal legislation. The following are the four levels of care provided under the hospice benefit: • Routine Home Care (“RHC”).
Liquidity and Capital Resources Our primary sources of liquidity are cash generated through operating activities and borrowings under our revolving credit facility.
Management's Discussion and Analysis of Financial Condition and Results of Operations on Form 10-K filed with the SEC on February 23, 2023. Liquidity and Capital Resources Our primary sources of liquidity are cash generated through operating activities and borrowings under our revolving credit facility.
Revolving Credit Facility On February 23, 2021, Pennant entered into an amendment to its existing credit agreement (as amended, the “Credit Agreement”), which provides for an increased revolving credit facility with a syndicate of banks with a borrowing capacity of $150.0 million (the “Revolving Credit Facility”).
The Credit Agreement provides for a revolving credit facility with a syndicate of banks with a borrowing capacity of $150.0 million (the “Revolving Credit Facility”).
(h) Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees including $958 in general and administrative expenses and $262 in cost of services for the year ended December 31, 2022.
The amounts reported exclude rent and depreciation and amortization expense related to such operations. (g) Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees in general and administrative and cost of services expenses.
Home health and hospice revenue increased $32.7 million, or 10.6%.
Home health and hospice revenue increased $52.2 million, or 15.3%.
Rent decreased 7.0% from $40.9 million to $38.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily as a result of the transfer of senior living communities to Ensign. Rent as a percentage of total revenue decreased from 9.3% to 8.0% in the year ended December 31, 2022. General and Administrative Expense.
Rent increased 4.6% from $38.0 million to $39.8 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily as a result of the newly acquired senior living communities.
Asset impairments related to the communities transferred to Ensign totaled $2.8 million for the year ended December 31, 2021. Provision for Income Taxes . Our effective tax rate for the year ended December 31, 2022 was 18.5% of earnings before income taxes compared with an effective tax rate of 21.3% for the year ended December 31, 2021.
Our effective tax rate for the year ended December 31, 2023 was 29.0% of earnings before income taxes compared with an effective tax rate of 18.5% for the year ended December 31, 2022. The increase in the effective tax rate is primarily due to a change in nondeductible equity compensation expenses.
The closing of the Transaction was completed in two phases with the transfer of two operations on March 1, 2022 and the remainder transferred on April 1, 2022. The amount includes $6,500 for the year ended December 31, 2022 to cover post-closing capital expenditures and operating losses related to one of the communities transferred on April 1, 2022.
The closing of the Transaction was completed in two phases with the transfer of two operations on March 1, 2022 and the remainder transferred on April 1, 2022. The amount above represents the net impact on revenue and cost of service attributable to all of the transferred entities.
The transfer includes a $6.5 million payment to Ensign for the year ended December 31, 2022 to cover post-closing capital expenditures and operating losses related to one of the communities transferred on April 1, 2022, which was recorded in loss on asset dispositions and impairment, net.
Loss on asset dispositions and impairment, net decreased $6.9 million for the year ended December 31, 2023 when compared to the year ended December 31, 2022 due to the transfer of senior living communities to Ensign in 2022. Provision for Income Taxes .
However, we have experienced modest senior living occupancy improvement during 2022, partly as a result of improving COVID-19 case trends and renewed consideration of senior living communities as a home based care setting. Nevertheless, we cannot be sure when the occupancy levels in our senior living communities will completely return to pre-pandemic levels.
Trends We have experienced modest senior living occupancy improvement through the year ended December 31, 2023, as a result of renewed consideration of senior living communities as a home-based care setting as the negative impacts of the global pandemic have subsided.
Cost of services as a percentage of revenue for the year ended December 31, 2022 decreased 0.4% compared to the year ended December 31, 2021, primarily due to a decrease in benefits cost related to transitioning to being self-insured for claims related to employee health, dental, and vision care in the current year partially offset by wage costs increase over the prior year in per hour wage rates and in overtime costs.
Cost of services as a percentage of revenue for the year ended December 31, 2023 increased by 140 basis points compared to the year ended December 31, 2022 primarily due to increased wages and benefits.
Removed
Due to the COVID-19 pandemic, the results presented in this report are not necessarily indicative of future operating results. The situation surrounding COVID-19 remains fluid.
Added
Though we have seen steady improvements in occupancy throughout 2022 and 2023, the highly competitive environment for senior living residents and inflationary factors will continue to impact the rate at which we return our occupancy levels in our senior living communities to pre-pandemic levels. When we acquire turnaround or start-up operations, we expect that our combined metrics may be impacted.
Removed
We are actively managing our response in collaboration with government officials, team members 29 Table of Contents and business partners, and we are assessing potential impacts to our financial position and operating results, as well as adverse developments in our business.
Added
Hospice. We derive the majority of our hospice business revenue from Medicare reimbursement. The estimated payment rates are calculated as daily rates for each of the levels of care we deliver.
Removed
Home Health and Hospice During the year ended December 31, 2022, the labor challenges experienced throughout the past year continued with some moderation.
Added
(f) During the year ended December 31, 2023, an affiliate of the Company placed its memory care units into transition and is actively seeking to sublease the units to an unrelated third party. The amount above represents the net operating impact attributable to the units in transition.
Removed
During 2022, hospice average discharged length of stay was impacted slightly as a result of a shift of patient referrals from more acute settings, resulting in a modest decline in hospice average length of stay despite an incremental improvement in hospice admissions.
Added
The amounts reported exclude rent and depreciation and amortization expense related to such operations and include legal settlement costs associated with one of the entities transitioned to Ensign.
Removed
Senior Living COVID-19 continues to impact our senior living business and geographies, including impacts on our residents, team members, vendors and business partners.
Added
The amounts reported for the year ended December 31, 2022 include certain costs identified as redundant or non-recurring incurred by the Company for services provided by Ensign under the Transition Services Agreement, and were included in general and administrative expense.
Removed
While our overall senior living occupancy has decreased since the onset of the COVID-19 pandemic due to a greater number of move outs net of move ins, during the year ended December 31, 2022 we experienced modest improvement in occupancy.
Added
(e) During the year ended December 31, 2023, an affiliate of the Company placed its memory care units into transition and is actively seeking to sublease the units to an unrelated third party. The amount above represents the net operating impact attributable to the units in transition.
Removed
We cannot be sure if or when the occupancy levels in our senior living communities will improve over multiple measurement periods or return to pre-pandemic levels. Labor Wage rates have increased in response to COVID-driven staffing shortages and the lingering disruption COVID-19 caused to the labor market.
Added
The amounts reported exclude rent and depreciation and amortization expense related to such operations and include legal settlement costs associated with one of the entities transitioned to Ensign.
Removed
We are monitoring the ongoing impact of COVID-19 on labor costs due to increased overtime, premium pay, and temporary labor to supplement existing staffing. Accordingly, we received state relief funding in selected states, which have been designed to provide additional funding to cover COVID-19 related expenses.
Added
The amounts reported exclude rent and depreciation and amortization expense related to such operations. (f) Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees in general and administrative and cost of services expenses.
Removed
For the year ended December 31, 2022, we recorded state relief funds of $4.2 million in costs of services as a direct offset against COVID-19 related expenses we incurred in those states in our senior living operations. Recent Activities Acquisitions.
Added
These Non-GAAP Financial Measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP.
Removed
Trends Since the pandemic began and until the first quarter of 2021, we experienced a steady decline in senior living occupancy as move-ins declined relative to move-outs due to the pandemic.
Added
As a percentage of revenue, costs of service decreased by 90 basis points during the year ended December 31, 2023 when compared to the year ended December 31, 2022 due to cost optimization, as occupancy increases toward approximately 80.0%. Rent—Cost of Services .
Removed
As uncertainty regarding the COVID-19 pandemic persists, if there is a resurgence in cases, or if variant strains aggressively emerge, we could see a more prolonged recovery. When we acquire turnaround or start-up operations, we expect that our combined metrics may be impacted.
Added
As a percentage of revenue, rent — cost of services decreased 70 basis points when compared to the year ended December 31, 2022 due to improved senior living performance. General and Administrative Expense.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk . We are exposed to risks associated with market changes in interest rates. Our Revolving Credit Facility exposes us to variability in interest payments due to changes in LIBOR LIBOR (and any benchmark replacement rate chosen after the completion of the phase-out of LIBOR in June 2023.
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk . We are exposed to risks associated with market changes in interest rates. On June 12, 2023, Pennant entered into the Second Amendment to the Credit Agreement, which replaced the reference rate under the Credit Agreement from LIBOR-based rate to SOFR-based rate.
A 1.0% interest rate change would cause interest expense to change by approximately $0.6 million annually based upon our outstanding long-term debt as of December 31, 2022. We manage our exposure to this market risk by monitoring available financing alternatives. LIBOR Phase-Out.
A 1.0% interest rate change would cause interest expense to change by approximately $0.7 million annually based upon our outstanding long-term debt as of December 31, 2023. We manage our exposure to this market risk by monitoring available financing alternatives.
Removed
LIBOR is in the process of being wound down and will be phased out by June 30, 2023 and will be phased out by June 30, 2023.
Removed
As of December 31, 2022 all CHF and EUR LIBOR settings, the 1 Week and 2 Months USD LIBOR settings, and the Overnight/Spot Next, 1 Week, 2 Months and 12 Months GBP and JPY LIBOR settings have ceased to be published. However, the Overnight and the 1-, 3-, 6- and 12-Months USD LIBOR settings will continue until June 2023.
Removed
We are required to pay interest on borrowings under our Credit Facility at floating rates based on the 1-month LIBOR and thus, we do not expect to transition away from the LIBOR benchmark until June 2023.
Removed
Future debt that we may incur may also require that we pay interest based upon LIBOR, or a “synthetic” benchmark equivalent such as the Standard Overnight Financing Rate or (“SOFR”).Our Credit Agreement provides a mechanism by which, when LIBOR is no longer published and available, the Administrative Agent and the Company may amend the Credit Agreement to replace LIBOR with a benchmark replacement rate (which may include term SOFR).
Removed
We currently expect that the benchmark rate used to determine the interest rate applicable to borrowings under our Credit Agreement would be revised as provided under the agreement or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR for similar types of loans.
Removed
Despite our current expectations, we cannot be sure that, when LIBOR is phased out, the changes to the benchmark rate used to determine the interest rate applicable to borrowings under our Credit Agreement would approximate the current calculation in accordance with LIBOR. 46 Table of Contents

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