10-Q – 2025-11-03 – ensg-20250930.htm

We believe that the regulatory environment surrounding the healthcare industry subjects providers to intense scrutiny. In the ordinary course of business, providers are subject to inquiries, investigations and audits by federal and state agencies related to compliance with participation and payment rules under government payment programs. These inquiries may originate from the Department of Health and Human Services (HHS), Office of the Inspector General (OIG), state Medicaid agencies, state Attorney Generals, local and state ombudsman offices and the Centers for Medicare and Medicaid Services (CMS) Recovery Audit Contractors, among other agencies. In response to the inquiries, investigations and audits, federal and state agencies may impose citations for regulatory deficiencies and other regulatory penalties, including demands for refund of overpayments, expanded civil monetary penalties that extend over long periods of time and date back to incidents prior to surveyor visits, Medicare and Medicaid payment bans and terminations from those programs, which may be temporary or permanent in nature. We vigorously contest each such regulatory outcome when appropriate; however, there are significant legal and other expenses involved that consume our financial and personnel resources. Expansion of enforcement activity could adversely affect our business, financial condition or the results of operations.
Proposed, Anticipated and Recently Issued Rulemaking and Administrative Actions
The federal government, through CMS rulemaking, Presidential executive actions or Congressional legislation, and state and local governments have recently released the following proposed or final rulemaking, or administrative actions that may have an impact on our independent Skilled Nursing Facilities (SNFs) or Assisted Living Facilities (ALFs):
Federal Government Shutdow n — Congress was unable to pass a new spending package before October 1, 2025, and as a result, the federal government shut down. At this time, we anticipate minimal impact on our businesses as both Medicare and Medicaid are mandatory health program payments that continue even during a lapse of appropriations.
HHS has a contingency plan to maintain necessary staffing and funding for certain programs during this time. This includes continuing Medicare and Medicaid payments to providers and states. There may be slight delays in payments, waiver approvals, changes of ownership approvals, and technical assistance due to fewer federal staff available to do this work, but we do not anticipate serious disruptions.
Given the reduction in federal staff, rule-making and other policy developments may be delayed. CMS survey and certification surveys will focus on serious, complaint investigations and other survey activities (e.g., recertification, initial and less serious complaint investigations) by federal staff will be suspended.
One Big Beautiful Bill (OBBB) — The OBBB was signed into law on July 4, 2025, implementing a range of federal reforms targeting Medicaid financing, eligibility, and payment structures. The following provisions of the OBBB are expected to impact Medicaid reimbursement mechanisms and enrollment dynamics relevant to our business.
Moratorium on New or Increased Provider Taxes — Provider taxes, which are state taxes assessed on healthcare providers or facilities, are a commonly used by states to generate non-federal share of Medicaid payments, including payments to SNFs. Under the Patient Protection and Affordable Care Act (ACA), provider taxes were capped at 6% of a provider's net patient revenue. Existing federal law prohibits states Medicaid programs from guaranteeing providers that they will receive their provider taxes paid back - this is known as the hold harmless provision. The OBBB prohibits states from imposing new provider taxes or increasing existing provider tax rates or tax bases, with specific carve outs for nursing facilities and intermediate care facilities to remain at status quo. The OBBB reduces the hold harmless threshold in expansion states beginning in fiscal year 2028. This threshold will decrease by 0.5% per year in ACA expansion states until the safe harbor limit is 3.5% in fiscal year 2032. While SNFs are exempt from the moratorium, broader limitations on provider taxes could reduce overall state Medicaid financing flexibility, increasing the risk of lower SNF reimbursement rates.
Medicaid Recertification Changes and Retroactive Eligibility Cut — Beginning in the first quarter of 2027, states must conduct Medicaid eligibility redeterminations every six months, rather than annually, for individuals enrolled under Medicaid. Additionally, the OBBB includes a provision to reduce Medicaid retroactive eligibility from 90 days to 30 days for most enrollees but is 60 days for long-term care residents and traditional Medicaid enrollees. We believe that these provisions could create the conditions for coverage interruptions, potential delays or denied payments.

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Revisions to State-Directed Payments (SDPs) — Prior to the OBBB’s passage, state Medicaid programs could require Medicaid managed care organizations (MCOs) to pay providers certain rates, make uniform rate increases, or to use certain payment methods. These state-mandated payments by MCOs were known as SDPs, the upper limits for which generally were higher than the highest Medicare payment rate for those services, which is used in calculating Medicaid fee-for-service supplemental payments. The OBBB limits total payments under existing CMS-approved SDPs to current levels and caps future SDPs based on whether the state has expanded its Medicaid program under the ACA. SDPs approved prior to the OBBB’s implementation are grandfathered by the OBBB, although those grandfathered payments are reduced by 10% per year starting on January 1, 2028, until those SDPs reach the allowable Medicare-related payment limit. For Medicaid expansion states, new SDPs may not exceed 100% of the Medicare equivalent payment rate; for non-expansion states, the cap is 110%. In the absence of published Medicare payment rates, the OBBB limits SDPs to the Medicaid fee-for-service payment rate. This provision could reduce overall state Medicaid financing flexibility, increasing the risk of lower SNF reimbursement rates.
Cap on Home Equity Excluded for Long-Term Care Eligibility Determination — The OBBB establishes a limit of $1.0 million for home equity that can be exempted from calculating an individual’s eligibility for Medicaid in seeking long-term care beginning January 1, 2028. This threshold is not indexed to inflation. States may, however, apply different home equity limits for primary residences that are located on farms.
Reduced Federal Contributions to State Medicaid Programs – Beginning in fiscal year 2030, the OBBB requires HHS to reduce federal financial contributions to Medicaid programs in states that identified improper payments to ineligible individuals or overpayments to eligible individuals. The OBBB expanded the scope of these improper payments to include payments where insufficient information is available to confirm the recipient’s eligibility for payment.
Home and Community Based Services (HCBS) – The OBBB allows states to obtain waivers from CMS so that Medicaid can be used to pay for HCBS rendered to beneficiaries who do not require an institutional level of care found in a SNF. The OBBB requires these waiver applications to include a demonstration that the state’s waiver will not increase the average amount of time that beneficiaries who need institutional levels of care will have to wait for services, intending to avoid HCBS being used in lieu of adequate SNF access for Medicaid beneficiaries requiring institutional care.
Overall Impact on State Budgets – The full effect of the OBBB on state budgets remains uncertain, particularly given the anticipated reduction in federal Medicaid contributions. A key risk to our revenue is that states may generally have fewer financial resources available. In response to how the overall budgets of states will be impacted by the OBBB due to reduced federal Medicaid contributions, some states have already taken legislative and regulatory actions to address the provisions of the OBBB and its potential impact. For instance, on September 17, 2025, California enacted Senate Bill 105, a comprehensive budget bill for the 2025-2026 fiscal year. This legislation allocates funding and makes budgetary adjustments across various state agencies, with notable emphasis on specific areas. Among its provisions, Senate Bill 105 designates targeted funding for the state’s Medicaid program, Medi-Cal, to ensure alignment with the OBBB.
Similarly, Colorado enacted Senate Bill 0001 on August 28, 2025. This law establishes a process for the governor to implement spending reductions if the state is unable to meet its fiscal obligations. It also requires the governor to submit proposed spending reduction plans to a legislative budget committee, which is responsible for advising the governor on these matters.
Overall, we anticipate more states may face challenging choices regarding their state budgets, which will increase the risk of lower SNF reimbursement rates. We will continue to monitor any such developments and advocate accordingly at the federal, state and local levels.
Medicare Annual Payment Rule — On July 31, 2025, CMS released the final rule for the SNF Prospective Payment System (PPS) Fiscal Year (FY) 2026 Final Rule outlining the following key changes:
FY 2026 Final Updates to the SNF Payment Rates — For fiscal year 2026, which begins on October 1, 2025 and ends on September 30, 2026, CMS has finalized a 3.2% increase to SNF PPS payment rates. This increase is based on the final SNF market basket of 3.3%, plus a 0.6% market basket forecast error adjustment, and a negative 0.7% productivity adjustment. This increase does not incorporate the SNF Value-Based Purchasing (VBP) Program reductions for certain SNFs subject to the net reduction in payments under the SNF VBP.
Patient-Driven Payment Model ( PDPM) ICD-10 code mappings – CMS finalized several technical revisions to the code mappings used to classify patients under the PDPM. These revisions are intended to enhance the accuracy of patient classification, payment calculations and coding practices under the PDPM.
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SNF Quality Reporting Program (QRP) — CMS has announced changes to the QRP that will take effect for residents admitted on or after October 1, 2025, impacting the FY 2027 SNF QRP. Specifically, four standardized patient assessment data elements within the Social Determinants of Health (SDOH) category will be removed. Additionally, CMS has updated the policy and process for submitting reconsideration requests, including amendments and codification of these procedures.
SNF Value-Based Purchase (VBP) Program — For the FY 2028 and FY 2029 program years, CMS has established performance standards to meet the statutory notice requirements. Additionally, starting with the FY 2028 program year, CMS will implement the previously established scoring methodology for the SNF Within-Stay Potentially Preventable Readmission (SNF WS PPR) measure, which will be included in the program’s measure set for the first time. To simplify the scoring process and provide clearer incentives for skilled nursing facilities (SNFs) to enhance the quality of care for all residents, CMS has decided to remove the Health Equity Adjustment. Furthermore, beginning with the FY 2027 program year, CMS will introduce a reconsideration process. This process will allow SNFs to request reconsideration if they are dissatisfied with CMS’s decision regarding a review and correction request.
Medicare Part B Fee Schedule — On July 14, 2025, CMS issued the 2026 Medicare Physician Fee Schedule (PFS) Proposed Rule, which outlines significant changes aimed at modernizing Medicare, improving care quality, and reducing unnecessary spending.
Two Payment Rates Based on Advanced Alternative Payment Model (AAPM) Participation — For the first time, there are two separate conversion factors for all Medicare-participating providers which impacts reimbursement for therapeutic services (including occupational therapy, speech language therapy, and physical therapy), evaluation and management services, and other services furnished in SNFs covered by Medicare Part B. This is required under the Medicare Access and CHIP Reauthorization Act (MACRA) depending on whether a provider qualifies as a participant in an AAPM. CMS proposes a qualifying AAPM participant conversion factor of $33.59, representing a 3.83% increase over the 2025 conversion factor of $32.35. The non-AAPM participant conversion factor is $33.42, a 3.31% increase over such 2025 conversion factor.
Payment Adjustments — CMS intends to decrease payments by 2.5% for certain services that are not time-based, such as certain therapy services. The rationale is that providers are expected to deliver these services more efficiently as they performed them repeatedly over time. This reduction is designed to balance out other areas of Medicare spending increases.
Telehealth — CMS has proposed significant changes to the Medicare Telehealth List (MTSL), including expanding permanent flexibilities for virtual direct supervision. One key change is the permanent lifting of frequency limits on providing subsequent nursing facility visits furnished via telehealth. Previously, when adding some services to the MTSL, CMS has included certain frequency restrictions on how often physicians and other practitioners can furnish the service via telehealth (e.g., one subsequent nursing facility visit furnished through telehealth every 14 days). Removing these restrictions will likely result in increased access to care and allow for additional services to be provided via telehealth.
CMS’s proposed changes could impact how SNFs deliver and bill for physician and ancillary services. The scope of reimbursable therapy and remote care services may expand, but future payment levels could fluctuate, positively or negatively, based on broader assumptions about efficiency and practice cost. SNFs that deliver telehealth-based care or participate in care coordination models may benefit from expanded flexibility and new billing pathways. However, these changes may also introduce added operational complexity and new compliance requirements. We are actively evaluating the proposal to understand its potential effects on our operations and financial outcomes.
Improving Care and Access to Nurses Act (I CAN Act) – I CAN Act was introduced in the Senate on February 13, 2025 and seek to expand the role of nurse practitioners (NPs) in SNFs and nursing homes. Under this legislation, NPs would be permitted to certify, oversee, and supervise care under Medicare and Medicaid without requiring physician oversight, subject to state law. If enacted, the Act would grant NPs the authority to certify patient admissions, manage care plans, and provide supervision in SNFs and intermediate care facilities. These proposed changes could potentially reduce reliance on physicians, streamline patient transitions from hospitals to long-term care, and increase access to care particularly in rural and underserved areas. The bill was referred to the Senate Committee on Finance on February 13, 2025, and has not advanced further since then.

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Biden-Harris Administration's Nursing Home Care Priorities — Prior to the change in Presidential Administration in 2025, the Biden-Harris Administration pursued reforms related to reimbursement, staffing levels, standards of care, increased transparency and public disclosure of ownership, and enhanced civil remedies as a means of enforcement against those facilities that do not satisfy CMS’s standards. These regulations remain active and enforceable. For instance, the SNF PPS FY 2025 Final Rule expanded CMS's authority to impose sanctions on Medicare-participating SNFs with ongoing or repeated deficiencies, with these enhanced enforcements taking effect at the start of the 2025. These increased sanctioning authorities took effect in the 2025 federal fiscal year, which began on October 1, 2024. With the publication of the SNF PPS FY2026 Final Rule, it appears the new administration does not intend to make significant changes to the scope, impact, or enforcement of these existing rules.
CMS Minimum Staffing Standards Final Rule — In April 2024, CMS issued its final rule establishing minimum staffing standards for skilled nursing facilities (Staffing Rule). The Staffing Rule has been met with opposition and legislation to halt its implementation. Litigation followed in federal courts located in Texas and Iowa, followed by appeals to the United States Courts of Appeals for the Fifth and Eight Circuits, respectively, in which CMS appealed court rulings holding that the Staffing Rule's staffing requirements were unenforceable. CMS has moved to dismiss both of these appeals, which request the Fifth Circuit granted on September 19, 2025. Notwithstanding CMS's reversal of its defense of the Staffing Rule, on September 2, 2025, CMS announced that it had drafted an interim final rule to repeal the Staffing Rule's minimum staffing standards. Implementation of the Staffing Rule was further impaired by the passage of the OBBB on July 4, 2025, which prohibited HHS from implementing, administering, or enforcing the Staffing Rule until October 1, 2034.
Medicare
Medicare presently accounts for approximately 24.9% of our skilled nursing services revenue year-to-date, being our second-largest revenue payor. The Medicare program and its reimbursement rates and rules are subject to frequent change. These include statutory and regulatory changes, rate adjustments, administrative or executive orders and government funding restrictions, all of which may materially adversely affect the rates at which Medicare reimburses us for our services. Budget pressures often lead the federal government to reduce or place limits on reimbursement rates under Medicare. Implementation of these and other types of measures has in the past, and could in the future, result in substantial reductions in our revenue and operating margins.
Patient-Driven Payment Model (PDPM) — The FY 2020 SNF PPS Rule implemented the Patient-Driven Payment Model (PDPM), a case mix methodology that bases Medicare reimbursement on the clinical condition and care needs of each patient. Under PDPM, diagnosis codes and various patient characteristics are used to classify residents and determine payment levels. The model incorporates five case-mix adjusted payment components - physician therapy, occupational therapy, speech language pathology, nursing and social services and non-therapy ancillary services - to reflect the complexity of care provided. Additionally, PDPM includes a sixth non-case mix component to account for utilization of SNFs' resources that are unrelated to individual resident characteristics.

PDPM is intended to achieve a more value-based, unified approach to post-acute care payments system. For example, it adjusts Medicare reimbursements to reflect the specific care requirements of each resident, rather than simply the volume or type of services delivered by the facility. As a result, payments to SNFs and nursing homes are primarily determined by the patient’s clinical profile, promoting a system that better aligns payment with patient needs.
Skilled Nursing Facility - Quality Reporting Program (SNF QRP) — The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) provided data reporting requirements for certain Post-Acute-Care (PAC) providers. If a SNF does not submit required quality data as required by the IMPACT Act, its payment rates are reduced by 2.0% for each such fiscal year, which may result in payment rates for a fiscal year being less than the preceding fiscal year.
The SNF QRP standardized patient assessment data elements. The SNF QRP applies to freestanding SNFs, SNFs affiliated with acute care facilities and all non-critical access hospital swing-bed rural hospitals. These data elements are the subject of frequent change and adjustment. CMS's rulemaking often identifies new data elements to be reported.

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CMS revised the calculation of its five-star ratings for the Nursing Home Compare website. Under this methodology, points are assigned to a SNF based on its performance across six measures: (1) case-mix adjusted total nurse staffing levels (including registered nurses, licensed practical nurses, and nursing aides), measured by hours per resident per day; (2) case-mix adjusted registered nurse staffing levels, measured by hours per resident per day; (3) case-mix adjusted total nurse staffing levels (including registered nurses, licensed practical nurses, and nursing aides), measured by hours per resident day on the weekend; (4) total nurse turnover, defined as the percentage of nursing staff that left the nursing home over a 12-month period; (5) registered nurse turnover, defined as the percentage of registered nursing staff that left the nursing home over a 12-month period; and (6) administrator turnover, defined as the percentage of administrators that left the nursing home over a 12-month period. These six measures will be measured on a quarterly basis.
These six measures were included in the five-star rating starting in October 2022. In addition, CMS also implemented a planned increase to the quality measure reporting thresholds, increasing each threshold by one-half of the average improvement of quality measure scores since CMS last set quality measure thresholds. Going forward, CMS plans to implement similar rating threshold increases every six months.
CMS has continued to refine the QRP including various measurements such as the adoption of a process measure for influenza vaccination coverage among healthcare personnel within SNFs and a Discharge Function Score (DC Function) measure, which determines the functional condition of residents by examining the proportion of SNF residents who achieve or surpass a projected discharge functionality score. The assessment includes consideration of mobility and self-care, utilizing data from the Minimum Data Set (MDS). The DC Function replaces the current process and is in effect for the FY 2025 SNF QRP. The SNF PPS FY 2024 Final Rule also modified the SNF QRP’s Healthcare Professional (HCP) Covid Vaccine Measure. The measure will track the proportion of healthcare staff vaccinated for COVID-19 and have kept their vaccination status current per the CDC recommendations. The SNF PPS FY 2024 Final Rule also removed the Application of Functional Assessment/Care Plan measures from the SNF QRP.
Under the SNF PPS FY 2024 Final Rule, CMS adopted two measures for the SNF QRP starting in FY 2026. First, CMS raised the Data Completion Thresholds for the MDS. SNFs must report required quality measure data and standardized resident assessment data gathered using the MDS for at least 90% of the assessments they submit to CMS. SNFs who fail to meet this requirement will be subject to a 2.0% reduction on their applicable fiscal year payment starting in FY 2026. Second, CMS adopted the Patient/Resident COVID-19 Vaccine metric. This metric highlights the number of patient stays in which SNF patients received the COVID-19 vaccine.
CMS’s SNF PPS FY 2025 Final Rule adopted several updates to the SNF QRP aimed at enhancing the integration of social determinants of health (SDOH) into patient assessments and ensuring the accuracy of reported data. Starting in fiscal year 2027, CMS will introduce four new SDOH items related to living situation, food security, and utility access, and modify an existing item on transportation availability in the MDS. Additionally, CMS requires that SNFs participating in the SNF QRP undergo a data validation process similar to that already implemented in the SNF Value-Based Purchasing (VBP) Program.
Starting in 2026, SNFs participating in the SNF QRP program will be required to take part in a validation program similar to that used for SNFs participating in the SNF VBP Program. Each year, 1,500 SNFs will be randomly chosen to submit MDS records for review. Facilities selected for this audit must provide the requested medical chart documentation within 45 calendar days of notification; failure to do so will result in noncompliance and a 2% reduction in Medicare reimbursement for that fiscal year.
Additionally, as outlined in the SNF PPS FY 2026 Final Rule, four standardized patient assessment data elements within the Social Determinants of Health (SDOH) category will be modified for residents admitted on or after October 1, 2025, impacting the FY 2027 SNF QRP. CMS has also finalized changes to the reconsideration request policy and process, formally amending and codifying procedures related to QRP data and evaluations.
Medicare Annual Payment Rule — Refer to Proposed, Anticipated and Recently Issued Rulemaking and Administrative Actions above for additional information on the SNF PPS FY 2026 Final Rule.

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Final Rule Fiscal Year 2025 SNF PPS — Starting on October 1, 2024 through September 30, 2025, CMS' final rule for the SNF PPS for FY 2025 (SNF PPS FY 2025 Final Rule) results in a net 4.2% increase in SNF payments under Medicare Part A in fiscal year 2025. The net increase was based on the SNF market basket of 3.0%, plus a 1.7% market basket forecast error adjustment, and a negative 0.5% productivity adjustment. This increase does not include the SNF VBP reductions for certain SNFs subject to the net reduction in payments under the SNF VBP. CMS also revised the SNF market basket base year from the 2018 base year to the current 2022 base year and updated the payment rates used under the SNF PPS based on the FY 2025 market basket increase factor, which is adjusted by both the productivity adjustment and forecast error correction. Within this rule, CMS also updated the SNF PPS wage index using core-based statistical areas (CBSAs) to reflect regional wage costs.

Home Health and Hospice Payment Rules Affecting SNFs — CMS’s final payment rules for other modalities of care delivery also affect the operations of SNFs. Under the 2025 Home Health PPS Final Rule, long-term care facilities, including SNFs, are required to submit at least weekly reports to CMS on respiratory illnesses. These reports must include information such as facility census, resident vaccination status for specified respiratory illnesses, confirmed resident cases and residents hospitalized from such illnesses.
Sequestration of Medicare Rates — The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called sequestration. Medicare FFS claims with dates of service or dates of discharge on or after April 1, 2013, incur a 2.0% reduction in Medicare payments through at least 2023, unless Congress takes further action. Under the Consolidated Appropriations Act of 2023 (CAA 2023), a further 4.0% cut to Medicare spending that would have been required under the Statutory Pay-As-You-Go Act of 2010 (PAYGO) was waived for fiscal years 2023 and 2024. Instead, the CAA 2023 deferred any further Medicare sequestration under PAYGO until fiscal year 2025. The CAA 2023 also offset planned Medicare sequestrations that would have been as high as 4.0% and instead maintained fee schedule cuts of approximately 2.0%. Absent a further act by Congress, such as a consolidated appropriations act for 2025 or other bill addressing spending in fiscal year 2025 (including retroactively), the sequestration of Medicare FFS claims is expected to take effect in fiscal year 2025. On October 29, 2024, the Medicare Patient Access and Stabilization Act of 2024 (MPASA) was introduced in the House of Representatives, seeking to increase the amount paid to physicians under Medicare by 4.73%. MPASA was referred to the House Ways and Means Committee and House Committee on Energy and Commerce on October 29, 2024, and referred to the Subcommittee on Health on December 17, 2024, with no further action taken on the bill, which did not pass into law before the end of the 118th Congress in December of 2024. Except for the increase in Medicare reimbursement made available under the OBBB discussed above, as of September 30, 2025, there has not been any further legislation proposed to combat this sequestration of Medicare rates.
Skilled Nursing Facility Value-Based Purchasing (SNF-VBP) Program — The SNF-VBP Program incentivizes SNFs by awarding payments based on the quality of care provided to Medicare beneficiaries, primarily measured through hospital readmission rates. Each year, CMS adjusts its payment rules for SNFs using this program, which now includes additional quality measures such as sharing of health information and standardized patient assessment data elements that evaluate cognitive function and mental status, special services and social determinants of health. CMS regulations outline both the performance metrics and the required data reporting for SNFs. Reporting deadlines for baseline period and performance periods began with the 2023 program year. The FY 2023 SNF PPS Final Rule expanded the SNF-VBP program beyond the single hospital readmission measure, adding new metrics for fiscal year 2026, such as healthcare associated infections requiring hospitalization (SNF HAI) and total nursing hours per resident day, and in fiscal year 2027, the discharge to community post-acute care measure for SNFs, which tracks of successful transitions from SNFs to community settings.

In the FY 2024 SNF PPS Final Rule, CMS elected to replace the SNFRM measure with the SNF within-stay (WS) potentially preventable readmission (PPR) measure starting in FY 2028. The PPR measure assesses the risk-standardized rate of unplanned, avoidable readmissions during SNF stays for Medicare fee-for-service beneficiaries. This new measure refines the previous 30-Day readmission metric by extending the observation period to the entire SNF stay and increasing the allowable gap between hospital discharge and the SNF admission to 30 days. These changes better align with the IMPACT Act and enhance the reliability of preventable readmissions tracking. The measure uses two years of Medicare claims data to calculate provider-specific risk-standardized readmission rate.

The FY 2025 SNF PPS Final Rule adopted several operational and administrative updates to the SNF VBP Program, including policies for selecting, updating and removing measurements to ensure ongoing relevance and effectiveness for assessing care quality. CMS also updated technical measures and procedures for reviewing and correcting data used to calculate its measures. SNFs can now review and correct PBJ data from fiscal year 2026 and MDS data from fiscal year 2027, allowing for more precise measurement based on updated data.
The FY 2026 SNF PPS Final Rule finalized several updates, including setting performance standards for the FY 2028 and FY 2029 program years to meet statutory notice requirements. CMS will apply the previously established scoring methodology
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to the SNF Within-Stay Potentially Preventable Readmission (WS PPR) measure starting in FY 2028. Additionally, CMS removed the Health Equity Adjustment to simplify scoring and clarify incentives for quality improvement. A new reconsideration process was also adopted, enabling SNFs to request a review if they are dissatisfied with CMS’s decision on a correction request, beginning with the FY 2027 program year.
Part B Rehabilitation Requirements — A portion of our revenue is paid by the Medicare Part B program under a fee schedule. Part B services are limited with a payment cap by combined speech-language pathology services (SLP), physical therapy (PT) services and a separate annual cap for occupational therapy (OT) services. Part B services are limited by a payment cap as there is one amount for physical therapy (PT) services and speech-language pathology (SLP) services combined and a separate amount for occupational therapy (OT) services.
The Bipartisan Budget Act of 2018 (BBA) establishes coding modifier requirements to obtain payments beyond certain payment thresholds, discussed below and reaffirms the specific $3,000 claim audit threshold requirements for Medicare Administrative Contractors. For PT and SLP combined the threshold for coding modifier requirements was $2,410 for CY 2025 with the same threshold for OT services. The KX modifier is added to medical claims to indicate the providing clinician attests that the services corresponding to that claim were medically necessary and that the justification for those services is contained within the patient’s medical records. This modifier is intended for use where the services will exceed the threshold for those services set by the BBA and updated by annual fee schedule rules, yet are still appropriate and medically necessary, and thus should be compensated by Medicare.
Consistent with CMS’s “Patients over Paperwork” initiative, the agency has also been moving toward eliminating burdensome claims-based functional reporting requirements. Beginning in 2021, CMS rescinded 21 problematic National Correct Coding Initiative edits impacting outpatient therapy services, including services furnished under Medicare Part B primarily related to PT and OT services, removing a coding burden caused by requirements for additional documentation and claim modifier coding.
Additionally, the Multiple Procedure Payment Reduction (MPPR) continues at a 50.0% reduction, which is applied to therapy procedures by reducing payments for practice expense of the second and subsequent procedures when services provided beyond one unit of one procedure are provided on the same day. The implementation of MPPR includes (1) facilities that provide Medicare Part B speech-language pathology, occupational therapy and physical therapy services and bill under the same provider number; and (2) providers in private practice, including speech-language pathologists, who perform and bill for multiple services in a single day.
On March 9, 2024, President Biden signed the Consolidated Appropriations Act of 2024, which included a 2.93% update to the 2024 Physician Fee Schedule (PFS) Conversion Factor (CF) for dates of service March 9, 2024 through December 31, 2024. This replaced the 1.25% update provided by the Consolidated Appropriations Act of 2023.
Through the end of 2024, certain of our Part B services provided through telehealth would qualify for Medicare reimbursement based on flexibility first provided under the Emergency Waivers, which added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF. During the Public Health Emergency (PHE), CMS added certain PT and OT services to the list of Medicare-covered telehealth services on a temporary basis, some of which were made permanent for use and new codes were added for PT, OT, or SLP telehealth services—including some “sometimes therapy” codes that were not subject to MPPR. The CAA 2023 extended certain, but not all, telehealth flexibilities until December 31, 2024, allowing certain telehealth flexibilities to continue after the PHE's expiration. The American Relief Act, 2025 extended some but not all telehealth flexibilities for an additional 3 months through March 31, 2025. On March 15, 2025, the President signed into law the Full-Year Continuing Appropriations and Extensions Act, 2025 that Congress passed on March 14, 2025, which extended these pandemic-era telehealth waivers for Medicare beneficiaries through September 30, 2025.
Under the 2025 PFS Final Rule, the 2.93% increase to the 2024 PFS CF expired and CMS seeks to impose an estimated 0.05% adjustment based on changes in work relative value units (RVUs) for certain services. As a result, the 2025 PFS Final Rule implements a reimbursement reduction of 2.83%, with a CF of $32.35, which is a reduction from the 2024 CF of $33.29. The 2025 PFS Final Rule adopts a 3.6% increase to the threshold for coding modifier requirements for PT and SLP combined, totaling $2,410 for 2025 with the same threshold for OT services. The threshold for targeted medical review for PT and OT (combined) and SLP is expected to remain at $3,000 through 2027.
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While the OBBB does not affect the 2025 PFS Final Rule, the OBBB did provide a one-year 2.5% increase to the conversion factor for services provided between January 1, 2026 and January 1, 2027. On July 14, 2025, CMS issued the 2026 PFS Proposed Rule (2026 PFS Proposed Rule), which increases Medicare reimbursement for provider services by a 2.5% increase in the conversion factor as set forth in the OBBB. The 2026 PFS Proposed Rule contains numerous significant changes regarding payment methods and models, encourages care coordination, reduces collection and reporting of data measurements, and continues certain telehealth flexibilities that began during the COVID-19 pandemic.
The 2025 PFS Final Rule also adopts a regulatory change that allows physical therapy assistants and occupational therapy assistants to be generally supervised by physical therapists and occupational therapists, respectively, in private practice, non-institutional settings, allowing greater flexibility in billing for those assistants’ services. Additionally, the 2025 PFS Final Rule excepts a therapist-established initial plan of care (POC) for PT, OT, or SLT services from requiring a physician or non-physician provider’s (NPP’s) signature, provided that (1) the patient’s physician or NPP referred the patient to the therapist and (2) the therapist has evidence that the POC was transmitted to the patient’s physician or NPP within 30 days of the patient’s initial evaluation. This flexibility applies only to the initial certification.
Finally, the 2025 PFS Final Rule reduces COVID-19 PHE-era telehealth flexibilities beginning on January 1, 2025, which would have taken effect without the above-described acts of Congress. Under this final rule, absent the subsequent Congressional acts, certain restrictions on telehealth that existed prior to the COVID-19 PHE will go back into effect: most geographic and site-of-service restrictions to telehealth will return, while physicians can still provide telehealth from home, and can provide audio-only telehealth communication in specific circumstances where the patient is unable to use video technology. CMS is also establishing new coding and payment for caregiver training services, including training services provided through eligible telehealth means.
Programs of All-Inclusive Care for the Elderly
The requirements under the Programs of All-Inclusive Care for the Elderly (PACE) provide greater operational flexibility and update information under the Medicare and Medicaid programs, including leniency in compliance with program requirements during and after a 3-year trial period and relieving restrictions placed on the team that assesses and provides for the needs of each PACE participant. Further, non-physician primary care providers can provide certain services in place of primary care physicians. The final rule, which went into effect on April 3, 2023, requires the collection of data by Medicare Advantage organizations and their service providers and the submission of data to CMS for risk adjustment data validation (RADV) audits. The purpose of these RADV audits is to maintain the accuracy of risk-adjusted payments made to Medicare Advantage organizations.
In 2024, CMS issued a new prescription drug event (PDE) reporting requirements for PACE organizations to receive manufacturer discounts for drugs provided through Medicare Part D as provided for in the Inflation Reduction Act of 2022 (IRA). The additional PDE information must be submitted beginning January 1, 2025. In June of 2024, CMS also updated its statement of rights for PACE participants.
Decisions Regarding Skilled Nursing Facility Payment
Reimbursement rates and rules are subject to frequent change that historically, have had a significant effect on our revenue. The federal government and state governments continue to focus on efforts to curb spending on healthcare programs such as Medicare and Medicaid. We are not able to predict the outcome of the legislative process. We also cannot predict the extent to which proposals will be adopted or, if adopted and implemented, what effect, if any, such proposals and existing new legislation will have on us. Efforts to impose reduced allowances, greater discounts and more stringent cost controls by government and other payors are expected to continue and could adversely affect our business, financial condition and results of operations.
These include statutory and regulatory changes, rate adjustments (including retroactive adjustments), administrative or executive orders and government funding restrictions influenced by budgetary or political pressures, may materially adversely affect the rates at which Medicare reimburses us for our services. Implementation of these and other types of measures has in the past, and could in the future, result in substantial reductions in our revenue and operating margins. For a discussion of historic adjustments and recent changes to the Medicare program and other reimbursement rates, see Part II, Item 1A Risk Factors under the headings Risks Related to Our Business and Industry.

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Patient Protection and Affordable Care Act (ACA)
Various healthcare reform provisions became law upon enactment of the ACA. The reforms contained in the ACA have affected our independent subsidiaries in some manner and are directed in large part at increased quality and cost reductions. Several of the reforms are very significant and could ultimately change the nature of our services, the methods of payment for our services and the underlying regulatory environment.
The IRA, which continued and expanded certain provisions of the ACA, extended the premium subsidies paid by the federal government, until the end of 2024, resulting in subsidies being available to offset or reduce the costs of private health insurance policies for qualifying individuals. This may aid older patients in obtaining or keeping their health insurance in order to pay for long-term care services. The CAA 2023 revised the funds available to fund Medicare in 2023 and deferred the PAYGO sequestration of Medicare expenses.
The changes in the Presidential Administration may significantly alter the current health care regulatory framework, payment activity, and impact our business and the health care industry, including any repeals, curtailments, extensions or expansions of certain ACA provisions, included, but not limited to recent rulemaking activity regarding ACA Section 1557's anti-discrimination provisions. We continually monitor these developments so we can respond to the changing regulatory environment impacting our business.
On July 4, 2025, the OBBB was enacted into law and intends to be a budget reconciliation law that by 2028 may significantly change the automatic reenrollment process for ACA marketplace health plans and impose work requirements as a condition of Medicaid eligibility, among other things. The OBBB reflects broader legislative efforts to roll back provisions of the ACA, and its enactment along with ongoing executive actions that run counter to the ACA, could reduce the availability of insurance coverage and may affect the population and payer mix of our independent subsidiaries.
Requirements of Participation
CMS has requirements that providers, including SNFs, must meet in order to participate in the Medicare and Medicaid Programs. Some of these requirements can be burdensome and costly. One such requirement of participation in the Medicare and Medicaid programs involves limitations around the use of pre-dispute, binding arbitration agreements by SNFs. CMS has historically issued guidance and direction around arbitration that must be satisfied for any admission agreement to be enforceable.
Phase 2 and 3 of the Requirements of Participation focuses on: (1) resident abuse and neglect; (2) admission, transfer and discharge; (3) mental health and substance abuse disorders; (4) staffing sufficiency; (5) residents’ rights; (6) potential inaccurate diagnoses or assessments; (7) prescription and use of pharmaceuticals; (8) infection prevention and control; (9) arbitration of disputes between facilities and residents; (10) psychosocial outcomes and related severity; and (11) the timeliness and completion of state investigations.
In 2022, CMS updated the Medicare Requirements of Participation for SNFs, to modify the requirements associated with a facility's physical environment to minimize unnecessary renovation expenses and avoid closure of SNFs due to the related expense. CMS "grandfathered" certain facilities and will allow SNFs that were participating in Medicare before July 5, 2016 and that previously used the Fire Safety Evaluation System (FSES) to continue using the 2001 FSES mandatory values when determining compliance with applicable standards. CMS also updated the Requirements of Participation to revise existing qualification requirements for directors of food and nutrition services in SNFs, while "grandfathering" in directors with two or more years of experience and certain minimum training in food safety so they may continue in that role without satisfying further educational requirements.
In 2023, CMS revised the survey resources that CMS and state surveyors use in evaluating SNFs’ compliance with federal Requirements for Participation. This revision incorporated changes to CMS’s focused infection control survey item, which CMS had removed in favor of standard infection control survey measures. These updates provided more information for state surveyors to utilize when evaluating SNFs’ compliance with the Medicare Requirements of Participation, as well as included guidance for facilities on operationalizing compliance with these requirements based on how surveyors would measure and evaluate facility performance.
CMS issued comprehensive updates to the State Operations Manual (Appendix PP) that took effect on April 28, 2025. These updates revised surveyor guidance across multiple areas, including infection control, staffing, PBJ reporting, psychotropic medication use, and medical director oversight responsibilities. These revisions are intended to enhance survey consistency and align with CMS’s broader focus on care quality and resident outcomes.
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Additionally, CMS issued guidance effective March 24, 2025, which took effect on April 28, 2025, clarifying that SNFs may not include pre-dispute, binding arbitration provisions or third-party financial guarantee requirements in admission agreements. If these provisions are not removed, they may result in survey citations and potential penalties for non-compliant SNFs.
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. The Balanced Budget Act of 1997 expanded the penalties for healthcare fraud. Additionally, the government or those acting on its behalf may bring an action under the FCA, alleging that a healthcare provider has defrauded the government by submitting a claim for items or services not rendered as claimed, which may include coding errors, billing for services not provided and submitting false or erroneous cost reports. The FCA clarifies that if an item or service is provided in violation of the AKS, the claim submitted for those items or services is a false claim that may be prosecuted under the FCA as a false claim. 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. Many states also have a false claim prohibition that mirrors or closely tracks the federal FCA.
Federal law also provides that the OIG has the authority to exclude individuals and entities from federally funded health care programs on a number of grounds, including, but not limited to, certain types of criminal offenses, licensure revocations or suspensions and exclusion from state or other federal healthcare programs. CMS can recover overpayments from health care providers up to six years following the year in which payment was made.
Over the years, the OIG have released the result of audit findings of Medicare overpayments, potentially affecting SNFs. These investigatory actions by OIG demonstrate its increased scrutiny into post-hospital SNF care provided to beneficiaries and may encourage additional oversight or stricter compliance standards. The DOJ has indicated that its healthcare enforcement trends would emphasize opioid prescribing, Medicare Advantage and managed care plan fraud, and COVID-19 related fraud, including under various relief programs available during and in conjunction with the pandemic. In November of 2023, OIG added to its work plan an audit of nursing homes' nurse staffing hours reported in CMS's payroll-based journal, for which OIG expects to issue a report in FY 2025. In addition, the OIG identified the following areas as its "key goals" for oversight: (1) protecting residents from fraud, abuse, neglect, and promoting quality of care; (2) promoting emergency preparedness and emergency response efforts: (3) strengthening frontline oversight; and (4) supporting federal monitoring of nursing homes to mitigate risks to residents.
In 2024, the OIG added to its work plan a series of studies that include: (a) the use of the National Background Check Program (NBCP) in conducting background checks of prospective long-term care provider employees to prepare a report regarding the cost of background checks, number of applicants who received background checks and disqualification of employees during and after NBCP participation; (b) the use of Medicaid supplemental payments for use in satisfying the state’s obligations to pay nursing facilities any amounts due under the state’s nursing facility upper payment limit; and (3) the assessment of the implementation of the Special Focus Facility Program for nursing facilities based on facilities that participated in the program from 2013 through 2022.
The OIG continues to increase its oversight of skilled nursing facility operations through its active Work Plan, with several new audits and studies that may impact SNFs. In June 2025, OIG announced a new evaluation of whether SNFs are properly engaging medical directors and accurately reporting medical directors’ hours of service in CMS’s PBJ reporting system. This review will examine whether medical directors are meeting regulatory expectations and whether reported hours reflect actual services provided, with potential implications for regulatory compliance and reimbursement oversight.
Separately, OIG announced an audit assessing whether SNFs are inappropriately billing Medicare Part D for prescription drugs provided during a Medicare Part A stay, as the OIG previously found potential overpayments of more than $465 million in Part D payments for drugs that were already covered under Part A. OIG is also reviewing state-level enforcement of minimum spending requirements for direct resident care in nursing facilities, which could affect state Medicaid reimbursement mechanisms and facility-level allocation of resources. In addition, a May 2025 OIG report identified deficiencies in how CMS shares PBJ staffing data with state survey agencies, limiting surveyors’ ability to assess RN staffing compliance and potentially delaying corrective action.

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Our business model is based in part on serving higher acuity patients. Over time our overall patient mix has consistently shifted to higher acuity in most facilities we operate. Further scrutiny of high-acuity residents and the treatment they receive may affect our business and subject us to increased governmental oversight. We also use specialized care-delivery software that assists our caregivers in more accurately capturing and recording services in order to, among other things, increase reimbursement to levels appropriate for the care actually delivered. These efforts may place us under greater scrutiny with the OIG, CMS, our fiscal intermediaries, recovery audit contractors and others.
Other Federal Legislation and Healthcare Reform
Five-Star Quality Reporting Metrics — The Quality Payment Program (QPP) was created under the Medicare Access and Children's Health Insurance Program (CHIP) Reauthorization Act of 2015. This program was based on the Merit-based Incentive Payment System (MIPS) or the use of Alternative Payment Models (APM), which relied on quality data CMS gathered and evaluated using the Five-Star Quality Rating system, which includes a rating of one to five in various categories. These categories include (but are not limited to) the results of surveys conducted by state inspectors, other health inspection outcomes, staffing, spending, readmissions and stay durations; the data collected and its weighting in determining a rating on a scale of one to five stars is subject to periodic and ongoing revision, re-balancing and adjustment by CMS to reflect market conditions and CMS’s priorities in patient care. Since 2020, CMS’s measurement of the data reported by providers, including SNFs, has become more competitive and resulted in a reduction of four- and five-star rankings available under CMS’s Five-Star Quality Rating system.
The Five-Star Quality reporting system for nursing homes is displayed on CMS's consumer-based Nursing Home Compare website, along with a consumer alert icon next to nursing homes that have been cited for incidents of abuse, neglect, or exploitation on the Nursing Home Compare website. The Nursing Home Compare website is updated monthly with CMS’s refresh of survey inspection results on that website. Additionally, the Nursing Home Compare website publishes ownership information for Medicare-enrolled nursing facilities based on disclosures made to CMS from 2016 through 2022 due to mergers, acquisitions, or other changes in ownership, to allow for the identification of common ownership of nursing facilities. The Five Star Quality Ratings incorporated staffing data such as staff tenure and SNF weekend staffing beginning with the October 2022 refresh of the Nursing Home Compare website.
In June 2025, CMS announced upcoming modifications to Nursing Home Care Compare platform and the Five Star Quality Rating system, set to take effect on July 30, 2025. Under these changes, CMS discontinued the use of the third most recent standard health survey in calculating the health inspection rating, relying instead on only the two latest surveys. The most recent survey will be weighted at 75% of the total score, while the second most recent survey result will contribute to the remaining 25% of the score. Additionally, CMS will begin publishing aggregated five-star performance metrics for nursing home chains and will remove COVID-19 vaccination measures from facility profile pages.
CMS is also updating the long-stay antipsychotic measure to incorporate data from Medicare and Medicaid claims as well as Medicare Advantage encounter records. This updated measure, effective January 28, 2026, is expected to increase the reported national antipsychotic rates from 14.6% to 17.0%. We expect that this change will result in varying changes to individual facilities' ratings.
However, starting July 30, 2025, updates to Nursing Home Care Compare will be temporarily paused until October 2025 as CMS transitions to a cloud-based Internet Quality Improvement and Evaluation System (iQIES) for survey data management. This pause is intended to give CMS time to validate the accuracy and integrity of the data and ensure that publicly reported information meets quality standards before resuming updates to the five-star ratings. The move to iQIES, along with the other changes, may also result in further adjustments to the rating system and could prompt additional audits by CMS or state surveyors.
In January of 2025, CMS unfroze four of its quality measures that it previously froze with its April 2024 refresh. CMS updated these measures to reflect recent changes in the minimum data set collected from SNFs. First, the measure of percentage of SNF residents who are at or above an expected ability to care for themselves and move around at discharge replaced the measure of percentage of residents who made improvements in function during a short stay. Second, the following measures have been respecified: (1) percentage of residents whose need for help with activities of daily living has increased during a long stay, and (2) percentage of residents whose ability to walk independently worsened during a long stay. Finally, the measure of percentage of all residents with pressure ulcers (regardless of stay duration) will replace the measure of percentage of high-risk residents with pressure ulcers during a long stay. Additionally, CMS recalculated the scoring cut points for these four measures to obtain an even distribution of scores. Additionally, the quality measure rating cut points were also adjusted to maintain their same overall distribution of ratings across measured facilities.
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In July 2024, CMS updated the Nursing Home Five-Star Quality Rating System to reflect several key changes. The staffing case-mix methodology now uses the PDPM model, replacing measures that were previously frozen in April. CMS also extended the definition of staffing turnover. Employees are now considered “turned over” if they haven’t worked for 90 consecutive days, up from 60. Additionally, CMS revised risk-adjustment models for claims-based measures to focus on residents’ functional abilities and goals, rather than just their status. To maintain consistency in star ratings, CMS adjusted thresholds so the distribution of 4- and 5-star ratings remains stable.
In April 2024, CMS froze four quality measures and three staffing measures to prevent changes until a subsequent date. It also updated the staffing rating methodology to assign the lowest score to facilities that fail to submit or submit incorrect staffing data.
Ownership Transparency Final Rule — In November 2023, CMS finalized a rule requiring SNFs to publicly disclose expanded information regarding their ownership and management structure, including the identity of any person or legal entity that: (1) exercises financial, operational, or managerial control over any facility or part of a facility, or provides services to a facility that include its policies and procedures or cash management services; (2) leases or subleases real property to the facility, or owns 5% or more of the real property’s total value; and (3) provides any management or administrative services (or consults regarding the same), or provides accounting or financial services to SNFs. The rule also expands ownership and control interest disclosures to include information about each member of the facilities governing body, individuals or entities serving as officers, directors, members, partners or managing employees, and a comprehensive breakdown of the organizational structure of any additional disclosable party that is not a natural person along with a description of their relationships with the facility. Starting in November of 2024, all SNFs must comply with these requirements. To facilitate compliance, CMS now requires SNFs to submit a new "SNF Attachment" to the standard CMS form 885A during revalidation. On July 23, 2025, CMS announced that all SNFs must revalidate their enrollment using this new attachment by January 1, 2026, regardless of their previous revalidation date.
Certain states have adopted laws reflecting their concerns regarding ownership transparency. For example, Iowa adopted laws requiring disclosure of ownership information not previously required for licensure to promote transparency in 2023. Additionally, in March 2024, the California Department of Health Care Access and Information of the California Health and Human Services Agency issued its notice of approval of regulatory action establishing policies and procedures that implement financial and ownership transparency requirements for California-licensed SNFs that are required by California law passed in 2021. Additionally, on July 27, 2025, the State of Washington enacted H.B. 1686, directing state agencies to develop a plan and recommendations for creating a registry of health care entities, including SNFs.
State-level Legislation and Healthcare Reform

The states where we operate have varied legislative priorities and accordingly legislation. These different legislative priorities vary for many reasons but ultimately result in the operations of our independent subsidiaries having different profiles for risk, regulatory burden, taxation and benefits based on the state in which the facility operates. By way of example, in 2022, California’s Governor signed into law the Skilled Nursing Facility Ownership and Management Reform Act of 2022. This law increased the authority of the California Department of Public Health and changed several provisions regarding SNF licensing in the State of California. These changes include eliminating previous regulatory provisions that permitted SNFs to operate in advance of receiving their formal license from the State. This law also requires SNF license applicants to disclose additional information in connection with a license application and evaluates more data regarding the applicant’s prior operations, including prior citations, CMS sanctions and legal proceedings against the applicant or other facilities owned or managed by the applicant before issuing a license. In contrast, on June 20, 2025, Texas passed SB 457 which will allow a new operator to receive uninterrupted Medicaid payments during the change of ownership process beginning on September 1, 2025. These examples, highlight the varied approaches that occur from state to state, with different approaches making it either easier or harder for our independent subsidiaries to operate. In addition, the impacts of the OBBB, as discussed above, will create varying approaches by state legislatures to address the provisions of such bill. We continue to monitor and advocate for positions that protect the interest of our employees, residents and those of our independent subsidiaries at all levels of government, particularly at the state and local levels.
The Impact of United States Supreme Court Decisions

On June 28, 2024, the United States Supreme Court issued its opinion in Loper Bright Enterprises v. Raimondo, deciding to vacate and remand decisions by the United States Courts of Appeals that relied on the Supreme Court’s own 1984 precedent in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., which sometimes required courts to defer to “permissible” agency interpretations of the statutes those agencies administered and enforced—a legal doctrine known as the “Chevron doctrine.” In Loper, the Supreme Court had to decide whether it should overrule or clarify the Chevron doctrine based on its application more than 40 years after its creation, and the Supreme Court chose to overrule it.
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The Chevron doctrine required courts to use a two-step process to interpret statutes administered by federal agencies. After determining that the Chevron doctrine may apply to a dispute before it, a federal court must assess whether Congress has directly spoken to the precise question at issue. If (and only if) the congressional intent of the statute is clear, that is the end of the inquiry as to the statute’s meaning. If the court determines that the statute is silent or ambiguous regarding the issue at hand, then the Chevron doctrine requires the court to defer to the agency’s interpretation if it “is based on a permissible construction of the statute.”

The Supreme Court’s Loper decision found that the Chevron doctrine is incompatible with the federal Administrative Procedure Act’s requirement for courts to exercise their independent judgment in deciding whether a federal agency has acted within its statutory authority. It further held that courts may not defer to an agency interpretation of a statute merely because the statute is ambiguous, as it is the responsibility of the court, rather than an agency that administers or acts under a statute, to discern the statute’s meaning. The Supreme Court reasoned that allowing agencies to interpret the laws they enforce or act under, rather than reserving that activity for the courts, was an impermissible delegation of an activity reserved to the courts.

While the decisions at issue in Loper pertained to fishing regulations promulgated by the Department of Commerce, the Chevron doctrine’s significance to the highly regulated field of healthcare is profound. The Chevron doctrine is frequently implicated in litigation over healthcare regulation, ranging from rules concerning staffing requirements and the validity of arbitration provisions, to requirements for healthcare workers to be vaccinated. Subsequent analysis has focused on the limits of the Loper decision, including any deference that courts may still afford to administrative agencies when based on agency fact-finding and policymaking, particularly where such power is expressly delegated to the agency by statute. The Loper decision likely will have significant and lasting consequences for the promulgation and enforcement of federal regulations by HHS and CMS, and may bear on the depth and detail of future legislation that is passed and enacted as statutes by Congress so that such laws can be enforced without administrative rulemaking or agency enforcement mechanisms.
Monitoring Compliance in Our Independent Subsidiaries  

Governmental agencies and other authorities periodically inspect our independent subsidiaries to assess compliance with various standards, rules and regulations, with potential fines, sanctions and other penalties for noncompliance. Unannounced surveys or inspections generally occur at least annually and may also follow a government agency's receipt of a complaint about a facility. Facilities must pass these inspections to maintain licensure under state law, to obtain or maintain certification under the Medicare and Medicaid programs, to continue participation in the Veterans Administration program at some facilities, and to comply with provider contracts with managed care clients at many facilities. From time to time, our independent subsidiaries, like others in the healthcare industry, may receive notices from federal and state regulatory agencies of an alleged failure to substantially comply with applicable standards, rules or regulations. These notices may require corrective action, may impose civil monetary penalties for noncompliance, and may threaten or impose other operating restrictions on SNFs such as admission holds, provisional skilled nursing license, or increased staffing requirements. If our independent subsidiaries fail to comply with these directives or otherwise fail to comply substantially with licensure and certification laws, rules and regulations, the facility could lose its certification as a Medicare or Medicaid provider or lose its license permitting operation in the State.
Facilities with otherwise acceptable regulatory histories generally are given an opportunity to correct deficiencies and continue their participation in the Medicare and Medicaid programs by a certain date, usually within six months of inspection; however, although where denial of payment remedies are asserted, such interim remedies go into effect much sooner. Facilities with deficiencies that immediately jeopardize patient health and safety and those that are classified as poor performing facilities, however, may not be given an opportunity to correct their deficiencies prior to the imposition of remedies and other enforcement actions. Moreover, facilities with poor regulatory histories continue to be classified by CMS as poor performing facilities notwithstanding any intervening change in ownership, unless the new owner obtains a new Medicare provider agreement instead of assuming the facility's existing agreement. However, new owners nearly always assume the existing Medicare provider agreement due to the difficulty and time delays generally associated with obtaining new Medicare certifications, especially in previously certified locations with sub-par operating histories. Accordingly, facilities that have poor regulatory histories before acquisition by our independent subsidiaries and that develop new deficiencies after acquisition are more likely to have sanctions imposed upon them by CMS or state regulators.
In addition, CMS has increased its focus on facilities with a history of serious or sustained quality of care problems through the Special Focus Facility (SFF) program. SFFs receive heightened scrutiny and more frequent regulatory surveys. Failure to improve the quality of care can result in fines and termination from participation in Medicare and Medicaid. A facility “graduates” from the SFF program once it demonstrates significant improvements in quality of care that are continued over a defined period of time.
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In October 2022, CMS increased penalties for SFFs that fail to improve their performance upon further inspection by CMS, increasing the standards SFFs must meet to graduate from the SFF program, maintaining heightened oversight of any SFF for a period of three years after it graduates and increasing the technical assistance CMS provides to SFFs.
Sanctions such as denial of payment for new admissions often are scheduled to go into effect before surveyors return to verify compliance. Generally, if the surveyors confirm that the facility is in compliance upon their re-evaluation, the sanctions never take effect. However, if they determine that the facility is not in compliance, the denial of payment goes into effect retroactive to the date given in the original notice, leaving operators with the task of deciding whether to continue accepting patients after the potential denial of payment date--risking the retroactive denial of revenue. Some of our independent subsidiaries have been or will be in denial of payment status due to findings of continued regulatory deficiencies, resulting in an actual loss of revenue associated with patients admitted after the denial of payment date. Additional sanctions could ensue and, if imposed, could include various remedies up to and including decertification.
CMS has undertaken several initiatives to increase or intensify Medicaid and Medicare survey and enforcement activities, including federal oversight of state surveyors. CMS is taking steps to focus more survey and enforcement efforts on facilities with findings of substandard care or repeat violations of Medicaid and Medicare standards and to identify multi-facility providers with patterns of noncompliance. CMS is also increasing its oversight of state survey agencies and requiring state agencies to use enforcement sanctions and remedies more promptly when substandard care or repeat violations are identified, to investigate complaints more promptly, and to survey facilities more consistently.
Regulations Regarding Financial Arrangements
We are also subject to federal and state laws that regulate financial arrangement by and between healthcare providers, such as the federal and state anti-kickback laws, the Stark laws, and various state anti-referral laws.
The Social Security Act prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce the referral of an individual, in return for recommending, or to arrange for, the referral of an individual for any item or service payable under any federal healthcare program, including Medicare or Medicaid. The OIG has issued regulations that create “safe harbors” for certain conduct and business relationships that are deemed protected under the Social Security Act. In order to receive safe harbor protection, all of the requirements of a safe harbor must be met. The fact that a given business arrangement does not fall within one of these safe harbors does not render the arrangement per se illegal. Business arrangements of healthcare service providers that fail to satisfy the applicable safe harbor criteria, if investigated, will be evaluated on a case-by-case basis based upon all facts and circumstances and risk increased scrutiny and possible sanctions by enforcement authorities.

Violations of the Social Security Act can result in inflation-adjusted criminal penalties of more than $0.1 million and ten years imprisonment. It can also result in inflation-adjusted civil monetary penalties of more than $0.1 million per violation and an assessment of up to three times the total amount of remuneration offered, paid, solicited, or received. It may also result in an individual's or organization's exclusion from future participation in federal healthcare programs. State Medicaid programs are required to enact an anti-kickback statute. Many states in which our independent subsidiaries operate have adopted or are considering similar legislative proposals, some of which extend beyond that state's Medicaid program, to prohibit the payment or receipt of remuneration for the referral of patients regardless of the source of payment for the care.

Additionally, the "Stark Law" of the Social Security Act provides that a physician may not refer a Medicare or Medicaid patient for a “designated health service” to an entity with which the physician or an immediate family member has a financial relationship unless the financial arrangement meets an exception under the Stark Law or its regulations. Designated health services include, in relevant part, inpatient and outpatient hospital services, PT, OT, SLP, durable medical equipment, prosthetics, orthotics and supplies, diagnostic imaging, and home health services. Under the Stark Law, a “financial relationship” is defined as an ownership or investment interest or a compensation arrangement. If such a financial relationship exists and does not meet a Stark Law exception, the entity is disallowed from seeking payment under the Medicare or Medicaid programs or from collecting from the patient or other payor. Statutory and regulatory exceptions and exemptions to this exist and have specific rules that must be followed to qualify for such exception or exemption. Any funds collected for an item or service resulting from a referral that violates the Stark Law are not eligible for payment by federal healthcare programs and must be repaid. Violations of the Stark Law may result in the imposition of civil monetary penalties, including, treble damages. Individuals and organizations may also be excluded from participation in federal healthcare programs for Stark Law violations. Many states have enacted healthcare provider referral laws that go beyond physician self-referrals or apply to a greater range of services than just the designated health services under the Stark Law.

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Regulations Regarding Patient Record Confidentiality
Health care providers are also subject to laws and regulations enacted to protect the confidentiality of patient health information and patients' right to access such information. For example, HHS has issued rules pursuant to HIPAA, including the Health Information Technology for Economic and Clinical Health (HITECH) Act which governs our use and disclosure of protected health information of patients. We and our independent subsidiaries have established policies and procedures to comply with HIPAA privacy and security requirements and our independent subsidiaries have adopted and implemented HIPAA compliance plans, which we believe comply with the HIPAA privacy and security regulations, which impose significant costs for ongoing compliance activities.
There are numerous other laws and legislative and regulatory initiatives at the federal and state levels addressing privacy and security concerns. Our independent subsidiaries are also subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA.
On January 17, 2024, CMS published the CMS Interoperability and Prior Authorization Final Rule (Interoperability Final Rule), which affects the data standards and application programming interfaces (APIs) used by entities that are payors for our services, including but not limited to Medicare Advantage organizations, Medicaid fee-for-service providers, and MCOs. This new rule requires these payor entities to adopt new patient access APIs beginning January 1, 2026, and to complete implementation of both patient and provider access APIs by January 1, 2027, to facilitate the sharing of payor information with payors and providers. While the purpose of this final rule is predominantly oriented to sharing information in the clinical setting and expediting the exchange of prior authorization data, this new rule may have implications for our business and how information is shared among our independent subsidiaries that participate in these programs, the payors, residents, and residents’ families involved in their care.
Antitrust Laws 

We are also subject to federal and state antitrust laws. Enforcement of the antitrust laws against healthcare providers is common, and antitrust liability may arise in a wide variety of circumstances, including third party contracting, physician relations, joint venture, merger, affiliation and acquisition activities. On February 3, 2023, the DOJ’s Antitrust Division withdrew its support for three policies that had been jointly created by the DOJ and the Federal Trade Commission (FTC) in 1993, 1996, and 2011, announcing instead, without providing further alternative guidance, that the DOJ would take a case-by-case enforcement approach to evaluate conduct in the healthcare industry, citing that the previous policies were outdated and overly permissive. Similarly, on July 14, 2023, the FTC withdrew two antitrust policy statements related to enforcement in healthcare markets. Moving forward, the FTC will evaluate mergers and conduct in healthcare markets on a case-by-case basis using principles of antitrust enforcement and competition policy.

On July 19, 2023, the DOJ and FTC released a draft joint statement of antitrust policy that outlines 13 guidelines to be used when determining if a merger is unlawfully anticompetitive under antitrust laws. These guidelines cover various aspects of antitrust enforcement relevant to SNF and senior living facilities, such as market concentration, competition between firms, risk of coordination, elimination of potential entrants, control of products or services, vertical mergers, dominant positions, trends toward concentration, series of multiple acquisitions, multi-sided platforms, competing buyers, partial ownership or minority interests and overall impact on competition. The draft joint statement also includes detailed sections on the application of the guidelines, defining relevant markets and approaches to rebuttal evidence. These proposed statements are not exhaustive, and the DOJ and FTC may focus on one or multiple guidelines depending on the specific circumstances of each merger. These proposed general statements of antitrust policy, once finalized, may be a prelude to a new joint statement of healthcare antitrust policy of the DOJ and FTC, with the agencies’ finalized general statements providing insight into whether healthcare-specific statements will be issued. This development and potential new guidance regarding DOJ and FTC antitrust policy increases risk and uncertainty regarding transactions that may be subject to criminal and civil enforcement by federal and state agencies, as well as by private litigants.

Further change is expected with respect to the DOJ and FTC’s antitrust policies due to the outcome of the 2024 presidential election, including as to how they relate to healthcare. As a result, these changes to the DOJ and FTC’s antitrust policies may be changed materially, not implemented, or reverted to prior statements that were withdrawn in February of 2023.

Several states in which we operate have enacted laws that mirror the Federal Hart-Scott-Rodino (HSR) Act. The HSR Act mandates that parties involved in certain transactions must provide advance notice to the Department of Justice (DOJ) and the Federal Trade Commission (FTC) to obtain clearance, ensuring the transaction complies with federal antitrust regulations. Similarly, these state-level HSR analogues require parties to notify state authorities and secure approval before finalizing mergers or acquisitions.
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This regulatory trend has accelerated in 2025, with more states actively considering or enacting such legislation. In some cases, state requirements align closely with the federal HSR Act, simply requiring that a copy of the federal HSR filing be submitted to a designated state agency. However, other states have established distinct or more rigorous standards, sometimes necessitating state approval for transactions that would not trigger federal reporting obligations under the HSR Act.
Among the states where we operate, California implemented its relevant laws in 2024, and Washington expanded the scope of its HSR-like requirements with new legislation effective July 27, 2025. Nevada, while it did not pass a comprehensive HSR analogue, does require notification or approval for certain healthcare transactions prior to closing. These evolving state regulations add new layers of compliance for mergers and acquisitions, particularly in the healthcare sector.

California Office of Health Care Affordability

The California Office of Health Care Affordability (OHCA), under California law, requires healthcare entities to provide OHCA with written notice of proposed qualifying agreements or transactions (referred to as a “Material Change Notice”) at least 90 days prior to entering into the agreement or transaction. Reportable transactions are determined based on a variety of factors outlined in the applicable regulations.

OHCA may coordinate with other state agencies, which may include the California Attorney General, California Department of Managed Care and Department of Insurance, to address the potential consequences of the agreement or transaction on the affected market.

If OHCA determines that a proposed agreement or transaction may have a risk of significant impact on certain aspects of the healthcare market, OHCA will conduct a Cost and Market Impact Review (CMIR) to analyze the issue in more detail. This CMIR process involves a deeper analysis than OHCA’s initial review of the information contained in a reporting party’s Material Change Notice. OHCA’s CMIR process may result in findings of anti-competitive effects that could generate a referral to the California Attorney General for further action.

From March 2025 through September 2025, we have cooperated with requests for information from OHCA regarding specific components of a proposed transaction in relation to purported concerns about market impact. Despite this continued cooperation, on October 10, 2025, OHCA issued an investigatory subpoena to us to produce (among other things) certain confidential and proprietary documents. We are reviewing the subpoena and will respond within the applicable time period.
Americans with Disabilities Act (ADA)
Our independent subsidiaries must also comply with the ADA, and similar state and local laws to the extent that the facilities are "public accommodations" as defined in those laws. The obligation to comply with the ADA and other similar laws is an ongoing obligation, and the independent subsidiaries continue to assess their facilities relative to ADA compliance and make appropriate modifications as needed.
Civil Rights
The Office for Civil Rights (OCR) for HHS issued guidance to hospitals and long-term care facilities, emphasizing their obligation under CMS regulations to ensure non-discriminatory visitation policies, especially during public health emergencies. This guidance, part of the U.S. National Strategy to Counter Antisemitism, clarifies that these facilities cannot discriminate based on religion or other classes or characteristics protected against discrimination under federal civil rights laws. The guidance includes examples where non-compliance occurred, such as unequal treatment based on religious affiliation or dietary restrictions, and stricter screening processes for certain religious groups. OCR offers assistance to facilities to obtain compliance with these standards and encourages residents and other affected individuals to file complaints with OCR for potential administrative or civil action in cases of civil rights violations. OCR has been increasingly involved in the monitoring and enforcement of patient and resident rights, particularly under rulemaking completed under Section 1557 of the ACA. However, recent litigation and political efforts have seen a reduction in enforcement of Section 1557. Specifically, HHS announced that it would not enforce certain regulations promulgated under Section 1557 related to discrimination based on sex, gender identity, and pregnancy status.

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Real Estate Investment Trust (REIT) Qualification
We elected for Standard Bearer to be taxed as a REIT for U.S. federal income tax purposes. Standard Bearer's qualification as a REIT will depend upon its ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code, relating to, among other things, the sources of its gross income, the composition and value of its assets, distribution levels to its shareholders and the concentration of ownership of its capital stock. We believe that Standard Bearer is organized in conformity with the requirements for qualification and taxation as a REIT under the Code and that its manner of operation has and will enable it to continue to meet the requirements for qualification and taxation as a REIT.
REGULATIONS SPECIFIC TO SENIOR LIVING COMMUNITIES AND ANCILLARY SERVICES
As previously mentioned, senior living services revenue, which accounted for 2.2% of total revenue, is primarily derived from private pay residents and senior living revenue derived from Medicaid funds. Thus, some of the regulations discussed above applicable to Medicaid providers, also apply to senior living.
A majority of states provide, or are approved to provide, Medicaid payments for personal care and medical services to some residents in licensed senior living communities. As rates paid to senior living community operators are generally lower than rates paid to SNF operators, some states use Medicaid funding of senior living services as a means of lowering the cost of services for residents who may not need the higher level of health services provided in SNFs. States that administer Medicaid programs for services in senior living communities are responsible for monitoring the participating communities and, as a result of the growth of senior living in recent years, these states have adopted licensing standards applicable to senior living communities. Similarly, states that elect to provide Medicaid coverage for an expanded range of HCBS services for individuals who do not require institutional care may also offer lower rates of reimbursement for those HCBS services than services provided in SNFs. This cost differential may make those HCBS services more attractive to Medicaid programs than SNF-based care.
CMS has continued to commence a series of actions to increase its oversight of state quality assurance programs for senior living communities and has provided guidance and technical assistance to states to improve their ability to monitor and improve the quality of services paid through Medicaid waiver programs. CMS is encouraging state Medicaid programs to expand their use of home and community-based services as alternatives to facility-based services, pursuant to provisions of the ACA, and other authorities, through the use of several programs.
The types of laws and statutes affecting the regulatory landscape of the post-acute industry continue to expand and the pressure to enforce those laws by federal and state authorities continues to grow as well. In order to operate our businesses, we and our independent subsidiaries must comply with federal, state and local laws from healthcare including provisions regarding patient safety, staffing, and prescription drugs to environmental issues. Changes in the law or new interpretations of existing laws may have an adverse impact on our methods and costs of doing business.

RESULTS OF OPERATIONS
Our total revenue for the three months ended September 30, 2025 increased $214.6 million, or 19.8%, compared to the three months ended September 30, 2024, while our diluted GAAP earnings per share grew by 6.0%, from $1.34 to $1.42, compared to the three months ended September 30, 2024. Our Same Facilities occupancy increased by 2.1% to 83.0% during the three months ended September 30, 2025 compared to the same period in 2024, demonstrating our ability to gain additional market share even at our more mature operations. Further, our Transitioning Facilities occupancy increased by 3.6% to 84.4% compared to the same period in 2024, highlighting our ability to organically grow and transform underperforming operations that we have acquired.
Throughout most of our history, our business has been affected by seasonal fluctuations in occupancy and acuity, which are most prominent when comparing the summer and winter months of the calendar year. For skilled nursing occupancy and skilled mix, we typically experience stronger occupancy and acuity during the first and fourth quarters and softening in the second and third quarters. Additionally, we historically have acquired operations with lower occupancy and skilled mix. As these operations become "operations of choice" in each of their respective healthcare markets, we typically see both occupancy and skilled mix increase.
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We have continued to make progress on targeted initiatives related to increasing occupancy and the level of acuity and complexity of the patients we serve in our facilities, attracting and developing our people and acquiring underperforming skilled nursing operations and integrating them with our proven cultural and operational principles. During the nine months ended September 30, 2025, we added 34 new operations. We consistently experience healthy growth in both revenue and overall results as we continue to work diligently with existing and recently acquired operations so that each operation can reach its full clinical and financial potential.
Our strength remains in our operating model, which empowers each operator to form their own market-specific strategy and adjust to the needs of their local medical communities, including methods for attracting new healthcare professionals into our workforce and retaining and developing existing staff. As we continue to execute on core fundamentals, we continue to see positive trends on both turnover and agency usage across our operations.
The following table sets forth details of operating results for our revenue, expenses and earnings, and their respective components, as a percentage of total revenue for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
  2025 2024 2025 2024

REVENUE:
Service revenue 99.5  % 99.5  % 99.5  % 99.5  %
Rental revenue 0.5  0.5  0.5  0.5 
TOTAL REVENUE 100.0   % 100.0   % 100.0   % 100.0   %

Expenses:
Cost of services 80.6  79.5  79.6  79.3 

Rent—cost of services 4.7  5.1  4.8  5.1 
General and administrative expense 5.2  5.2  5.4  5.4 
Depreciation and amortization 2.1  1.9  2.0  1.9 
TOTAL EXPENSES 92.6   % 91.7   % 91.8   % 91.7   %
Income from operations 7.4  8.3  8.2  8.3 
Other income (expense):
Interest expense (0.2) (0.2) (0.2) (0.2)
Interest income 0.5  0.7  0.5  0.7 
Other income
0.5  0.4  0.3  0.2 
OTHER INCOME, NET 0.8   % 0.9   % 0.6   % 0.7   %
Income before provision for income taxes 8.2  9.2  8.8  9.0 
Provision for income taxes 1.7  1.9  2.1  2.0 

NET INCOME 6.5   % 7.3   % 6.7   % 7.0   %
Less: net income attributable to noncontrolling interests —  —  —  — 

 Net income attributable to The Ensign Group, Inc. 6.5   % 7.3   % 6.7   % 7.0   %

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  Three Months Ended September 30, Nine Months Ended September 30,
  2025 2024 2025 2024

SEGMENT INCOME (1)
(In thousands)
Skilled services $ 153,126  $ 128,489  $ 447,061  $ 377,483 
Standard Bearer (2)
9,622  7,274  27,331  21,892 
NON-GAAP FINANCIAL MEASURES:
PERFORMANCE METRICS

Adjusted EBT $ 128,721  $ 108,352  $ 371,971  $ 311,141 
EBITDA 128,969  114,442  389,673  326,410 

Adjusted EBITDA 151,090  123,884  435,086  356,766 

FFO for Standard Bearer
19,331  14,758  54,781  43,371 

VALUATION METRICS
Adjusted EBITDAR $ 212,618  $ 610,885 

(1) Segment income represents operating results of the reportable segments excluding gain and loss on sale of assets, real estate insurance recoveries and losses, impairment charges and provision for income taxes. Included in segment income for Standard Bearer are expenses for intercompany management fees between Standard Bearer and the Service Center and intercompany interest expense. Segment income is reconciled to the Condensed Consolidated Statement of Income in Note 8, Business Segments in Notes to Interim Financial Statements of this Quarterly Report on Form 10-Q.
(2) Standard Bearer segment income includes rental revenue and expenses from our independent subsidiaries.

The following discussion includes references to Adjusted EBT, EBITDA, Adjusted EBITDA, Adjusted EBITDAR and Funds from Operations (FFO) which are non-GAAP financial measures (collectively, the Non-GAAP Financial Measures). Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other provisions of the Securities Exchange Act of 1934, as amended (the Exchange Act), define and prescribe the conditions for use of certain non-GAAP financial information. These Non-GAAP Financial Measures are used in addition to and in conjunction with results presented in accordance with GAAP. These Non-GAAP Financial Measures should not be relied upon to the exclusion of GAAP financial measures. These Non-GAAP Financial Measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business.

We believe the presentation of certain Non-GAAP Financial Measures are useful to investors and other external users of our financial statements regarding our results of operations because:

• they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall performance of companies in our industry without regard to items such as interest income, interest expense and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, capital structure and the method by which assets were acquired; and
• they help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating results.

We use the Non-GAAP Financial Measures:

• as measurements of our operating performance to assist us in comparing our operating performance on a consistent basis;
• to allocate resources to enhance the financial performance of our business;
• to assess the value of a potential acquisition;
• to assess the value of a transformed operation's performance;
• to evaluate the effectiveness of our operational strategies; and
• to compare our operating performance to that of our competitors.

We use certain Non-GAAP Financial Measures to compare the operating performance of each operation. These measures are useful in this regard because they do not include such costs as other 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 amount of debt that we have incurred, whether an operation is owned or leased, the date of acquisition of a facility or business, and the tax law of the state in which a business unit operates.
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We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of certain Non-GAAP Financial Measures.

Despite the importance of these measures in analyzing our underlying business, designing incentive compensation and for our goal setting, the Non-GAAP Financial Measures have no standardized meaning defined by GAAP. Therefore, certain of our Non-GAAP Financial Measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP. Some of these limitations are:

• they do not reflect our current or future cash requirements for capital expenditures or contractual commitments;
• they do not reflect changes in, or cash requirements for, our working capital needs;
• they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
• they do not reflect rent expenses, which are necessary to operate our leased operations, in the case of Adjusted EBITDAR;
• they do not reflect any income tax payments we may be required to make;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and do not reflect any cash requirements for such replacements; and
• other companies in our industry may calculate these measures differently than we do, which may limit their usefulness as comparative measures.
We compensate for these limitations by using them only to supplement net income on a basis prepared in accordance with GAAP in order to provide a more complete understanding of the factors and trends affecting our business. Management strongly encourages investors to review our consolidated financial statements in their entirety and to not rely on any single financial measure. Because these Non-GAAP Financial Measures are not standardized, it may not be possible to compare these financial measures with other companies’ Non-GAAP financial measures having the same or similar names. 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 below, along with our Interim Financial Statements and related notes included elsewhere in this document.

We use the following Non-GAAP financial measures that we believe are useful to investors as key valuation and operating performance measures:

PERFORMANCE MEASURES
Adjusted EBT

We adjust income before provision for income taxes (Adjusted EBT) when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Adjusted EBT, when combined with income before provision for income taxes and GAAP net income attributable to The Ensign Group, Inc., is beneficial to an investor’s complete understanding of our operating performance. We use this performance measure as an indicator of business performance, as well as for operational planning, decision-making purposes and to determine compensation in our executive compensation plan.

Adjusted EBT is income before provision for income taxes adjusted for non-core business items, which for the reported periods includes, to the extent applicable:
• stock-based compensation expense;
• acquisition related costs;
• costs incurred related to system implementations;
• litigation;
• gain on business interruption recoveries and loss on long-lived assets;
• gain on other investments; and
• amortization of patient base intangible assets.
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EBITDA

We believe EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base (depreciation and amortization expense) from our operating results.

We calculate EBITDA as net income, adjusted for net losses attributable to noncontrolling interest, before (a) interest income, (b) provision for income taxes, (c) depreciation and amortization, and (d) interest expense.
Adjusted EBITDA

We adjust EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, in the case of Adjusted EBITDA. We believe that the presentation of Adjusted EBITDA, when combined with EBITDA and GAAP net income attributable to The Ensign Group, Inc., is beneficial to an investor’s complete understanding of our operating performance.  

Adjusted EBITDA is EBITDA adjusted for the same non-core business items as listed in Adjusted EBT, except for amortization of patient base intangible assets.
Funds from Operations (FFO)

We consider FFO to be a useful supplemental measure of the operating performance of Standard Bearer. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values have historically risen or fallen with market conditions, many real estate investors and analysts have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient. In response, the National Association of Real Estate Investment Trusts (NAREIT) created FFO as a supplemental measure of operating performance for REITs, which excludes historical cost depreciation from net income. We define (in accordance with the definition used by NAREIT) FFO to consist of Standard Bearer segment income, excluding depreciation and amortization related to real estate, gains or losses from the sale of real estate, insurance recoveries related to real estate and impairment of long-lived assets.
VALUATION MEASURE
Adjusted EBITDAR

 We use Adjusted EBITDAR as one measure in determining the value of prospective acquisitions. It is also a commonly used measure by our management, research analysts and investors, to compare the enterprise value of different companies in the healthcare industry, without regard to differences in capital structures and leasing arrangements. Adjusted EBITDAR is a financial valuation measure that is not specified in GAAP. This measure is not displayed as a performance measure as it excludes rent expense, which is a normal and recurring operating expense, and is therefore presented only for the current period.

The adjustments made and previously described in the computation of Adjusted EBITDA are also made when computing Adjusted EBITDAR. We calculate Adjusted EBITDAR by excluding rent-cost of services from Adjusted EBITDA.

We believe the use of Adjusted EBITDAR allows the investor to compare operational results of companies who have operating and capital leases. A significant portion of capital lease expenditures are recorded in interest, whereas operating lease expenditures are recorded in rent expense.

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The table below reconciles income before provision for income taxes to Adjusted EBT for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024

Consolidated statements of income data:
(In thousands)
Income before provision for income taxes $ 106,600  $ 98,674  $ 325,538  $ 280,336 
Stock-based compensation expense
12,989  9,183  35,375  26,406 
Litigation (1)
12,000  (555) 12,000  (1,425)
(Gain)/loss on business interruption recoveries and long-lived assets, net
(1,660) 486  (2,660) 2,335 

Gain on other investments (2)
(2,437) —  (2,437) — 
Acquisition related costs (3)
528  239  1,663  518 
Costs incurred related to system implementations
701  89  1,472  2,522 
Depreciation and amortization - patient base (4)
—  236  1,020  449 

ADJUSTED EBT
$ 128,721   $ 108,352   $ 371,971   $ 311,141  

(1) Represents specific proceedings and adjustments arising outside of the ordinary course of business.
(2) Represents gains on the sale of investments that are not part of our core business operations. These investments have no observable market prices and are held at historical cost basis until sold or impaired.
(3) Represents costs incurred to acquire operations that are not capitalizable.
(4) Represents amortization expenses related to patient base intangible assets at newly acquired skilled nursing and senior living facilities.

The table below reconciles net income to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024

Consolidated statements of income data:
(In thousands)
Net income $ 83,911  $ 78,567  $ 248,730  $ 218,708 
Less: Net income attributable to noncontrolling interests
67  123  213  422 
Interest income
6,168  7,607  18,291  21,151 
Add: Provision for income taxes
22,689  20,107  76,808  61,628 
          Depreciation and amortization
26,633  21,474  76,606  61,619 
          Interest expense 1,971  2,024  6,033  6,028 
EBITDA $ 128,969   $ 114,442   $ 389,673   $ 326,410  
Adjustments to EBITDA:
Stock-based compensation expense 12,989  9,183  35,375  26,406 
Litigation (1)
12,000  (555) 12,000  (1,425)

(Gain)/loss on business interruption recoveries and long-lived assets, net
(1,660) 486  (2,660) 2,335 

Gain on other investments (2)
(2,437) —  (2,437) — 
Acquisition related costs (3)
528  239  1,663  518 
Costs incurred related to system implementations 701  89  1,472  2,522 
ADJUSTED EBITDA
$ 151,090   $ 123,884   $ 435,086   $ 356,766  
Rent—cost of services 61,528  54,792  175,799  159,940 
ADJUSTED EBITDAR
$ 212,618   $ 610,885  

(1) Represents specific proceedings and adjustments arising outside of the ordinary course of business.
(2) Represents gains on the sale of investments that are not part of our core business operations. These investments have no observable market prices and are held at historical cost basis until sold or impaired.
(3) Represents costs incurred to acquire operations that are not capitalizable.
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Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 2024

The following tables set forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

Three Months Ended September 30, 2025
  Skilled services Standard Bearer All Other Eliminations Consolidated
Total revenue
$ 1,239,096  $ 32,610  $ 60,578  $ (35,879) $ 1,296,405 
Total expenses, including other income, net
1,085,970  22,988  115,653  (35,879) 1,188,732 
Segment income (loss) 153,126  9,622  (55,075) —  107,673 
Loss on long-lived assets —  —  —  —  (1,073)
Income before provision for income taxes $ 106,600  

Three Months Ended September 30, 2024
  Skilled services Standard Bearer All Other Eliminations Consolidated
Total revenue
$ 1,033,113  $ 24,429  $ 51,144  $ (26,910) $ 1,081,776 
Total expenses, including other income, net
904,624  17,155  87,747  (26,910) 982,616 
Segment income (loss) 128,489  7,274  (36,603) —  99,160 
Loss on long-lived assets
(486)
Income before provision for income taxes $ 98,674  

Our total revenue increased by $214.6 million, or 19.8%, compared to the three months ended September 30, 2024. The increase in revenue was primarily driven by increases in occupancy of 2.1% and 3.6% from our skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing skilled mix and daily revenue rates. In addition, our Recently Acquired Facilities revenue increased by $135.2 million, when compared to the same period in 2024, primarily as a result of acquisitions from October 1, 2024 through September 30, 2025.
Skilled Services

REVENUE

The following tables present the skilled services revenue and key performance metrics by category during the three months ended September 30, 2025 and 2024:
Three Months Ended September 30,
  2025 2024 Change % Change

TOTAL FACILITY RESULTS: (Dollars in thousands)
Skilled services revenue
$ 1,239,096  $ 1,033,113  $ 205,983  19.9  %
Number of facilities at period end 314  282  32  11.3  %
Number of campuses at period end (1)
31  29  2  6.9  %
Actual patient days 2,772,062  2,407,709  364,353  15.1  %
Occupancy percentage — Operational beds 82.3  % 80.9  % 1.4  % 1.7  %
Skilled mix by nursing days 30.3  % 29.7  % 0.6  % 2.0  %
Skilled mix by nursing revenue 48.9  % 48.5  % 0.4  % 0.8  %

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Three Months Ended September 30,
  2025 2024 Change % Change

SAME FACILITY RESULTS: (2)
(Dollars in thousands)
Skilled services revenue
$ 859,561  $ 806,699  $ 52,862  6.6  %
Number of facilities at period end 210  210  —  —  %
Number of campuses at period end (1)
25  25  —  —  %
Actual patient days 1,915,145  1,864,637  50,508  2.7  %
Occupancy percentage — Operational beds 83.0  % 81.3  % 1.7  % 2.1  %
Skilled mix by nursing days 31.7  % 31.0  % 0.7  % 2.3  %
Skilled mix by nursing revenue 50.5  % 49.5  % 1.0  % 2.0  %

Three Months Ended September 30,
2025 2024 Change % Change

TRANSITIONING FACILITY RESULTS: (3)
(Dollars in thousands)
Skilled services revenue
$ 192,299  $ 174,328  $ 17,971  10.3  %
Number of facilities at period end 48  48  —  —  %
Number of campuses at period end (1)
2  2  —  —  %
Actual patient days 430,441  415,753  14,688  3.5  %
Occupancy percentage — Operational beds 84.4  % 81.5  % 2.9  % 3.6  %
Skilled mix by nursing days 29.4  % 27.5  % 1.9  % 6.9  %
Skilled mix by nursing revenue 50.9  % 48.9  % 2.0  % 4.1  %

Three Months Ended September 30,
2025 2024 Change % Change

RECENTLY ACQUIRED FACILITY RESULTS: (4)
(Dollars in thousands)
Skilled services revenue
$ 187,236  $ 52,086  $ 135,150  NM
Number of facilities at period end 56  24  32  NM
Number of campuses at period end (1)
4  2  2  NM
Actual patient days 426,476  127,319  299,157  NM
Occupancy percentage — Operational beds 77.5  % 73.9  % NM NM
Skilled mix by nursing days 24.4  % 18.5  % NM NM
Skilled mix by nursing revenue 39.3  % 29.6  % NM NM

(1) Campus represents a facility that offers both skilled nursing and senior living services. Revenue and expenses related to skilled nursing and senior living services have been allocated and recorded in the respective operating segment.
(2) Same Facility results represent all facilities purchased prior to January 1, 2022.
(3) Transitioning Facility results represent all facilities purchased from January 1, 2022 to December 31, 2023.
(4) Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2024.

Skilled services revenue increased by $206.0 million, or 19.9%, compared to the three months ended September 30, 2024. The increases in skilled services revenue were across all payer types, including increases in Medicaid revenue of $95.0 million, or 19.6%, and Medicare revenue of $39.7 million, or 15.1%.

The increase in skilled services revenue was primarily driven by strong occupancy and skilled mix performance across our skilled services operations. Our consolidated occupancy increased by 1.7% to 82.3%, during the three months ended September 30, 2025 compared to the same period in 2024 across all payors, with an increase in skilled days from our operations within Same Facilities and Transitioning Facilities.

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Revenue in our Same Facilities increased by $52.9 million, or 6.6%, compared to the same period in 2024, due to increased occupancy from strong skilled days and revenue per patient day. Our continuous efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 6.6%, resulting from an increase in managed care days and revenue per patient day. We continued to expand our Medicare patient base while also increasing our share of the growing Medicare Advantage market. Our Medicare revenue increased by 3.8% due to an increase in Medicare days and revenue per patient day. In addition, our other skilled revenue has continued to support the needs of the local communities through the expansion of the Veterans Affairs programs.

Revenue in our Transitioning Facilities increased by $18.0 million, or 10.3%, compared to the same period in 2024, due to improved occupancy growth, increases in skilled mix days and revenue per patient day. The increases in revenue were derived from increased Managed Care revenue of 22.0%, Medicaid revenue of 7.6% and private and other revenue of 33.2%. The increases are a result of an increase in patient days across all payer types, which reflect our operational fundamentals as we continue to transition and integrate these facilities.

Revenue in our Recently Acquired Facilities increased by approximately $135.2 million compared to the same period in 2024. The 34 operational expansions between October 1, 2024 and September 30, 2025 across 12 states contributed $113.0 million of the total increase.

Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate lower overall occupancy during years of growth. In the future, if we acquire additional turnaround or start-up operations, we expect to see lower occupancy rates and skilled mix and these metrics are expected to vary from period to period based upon the type of facilities and operations that we acquire.
The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate (1) :
Three Months Ended September 30,
  Same Facility Transitioning Acquisitions Total
  2025 2024 2025 2024 2025 2024 2025 2024

SKILLED NURSING AVERAGE DAILY REVENUE RATES:
Medicare $ 792.47  $ 750.49  $ 871.52  $ 820.18  $ 748.57  $ 632.03  $ 800.89  $ 761.27 
Managed care
579.20  553.97  620.45  573.69  587.23  465.08  585.56  553.85 
Other skilled 652.65  631.74  603.05  577.97  688.31  639.20  650.94  625.47 
Total skilled revenue 667.71  636.96  733.15  697.05  676.61  561.74  678.71  644.15 
Medicaid 304.16  294.55  292.47  274.77  335.07  304.13  307.19  291.49 
Private and other payors 300.91  278.56  313.92  282.53  350.48  300.05  312.58  280.84 
Total skilled nursing revenue
$ 419.19  $ 398.99  $ 424.07  $ 391.60  $ 420.56  $ 351.14  $ 420.16  $ 395.24 

(1) The rates are based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606.

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.6% and 6.3%, respectively, compared to the three months ended September 30, 2024. The increase is attributable to the 4.2% net market basket increase that became effective in October 2024 as well as a shift toward higher acuity patients. As hospitals continue to discharge individuals with more complex medical conditions to skilled nursing facilities, we are experiencing a greater proportion of higher acuity patients, which necessitates more advanced and specialized care.

Our average Medicaid rates increased 5.4% due to state reimbursement increases, our participation in Medicaid supplemental payment and quality improvement programs in various states.
Payor Sources as a Percentage of Skilled Nursing Services. We use our skilled mix as a measure of the quality of reimbursements we receive at our affiliated skilled nursing facilities over various periods.

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The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:

  Three Months Ended September 30,
  Same Facility Transitioning Acquisitions Total
  2025 2024 2025 2024 2025 2024 2025 2024
PERCENTAGE OF SKILLED NURSING REVENUE
Medicare 20.8  % 20.4  % 27.8  % 28.7  % 18.8  % 13.2  % 21.6  % 21.5  %
Managed care 20.0  20.1  16.5  14.9  12.7  10.5  18.3  18.8 
Other skilled 9.7  9.0  6.6  5.3  7.8  5.9  9.0  8.2 
Skilled Mix 50.5   % 49.5   % 50.9   % 48.9   % 39.3   % 29.6   % 48.9   % 48.5   %
Private and other payors 7.3  7.4  6.4  7.1  11.4  13.7  7.7  7.6 

Medicaid 42.2  43.1  42.7  44.0  49.3  56.7  43.4  43.9 
TOTAL SKILLED NURSING
100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   %

  Three Months Ended September 30,
  Same Facility Transitioning Acquisitions Total
  2025 2024 2025 2024 2025 2024 2025 2024
PERCENTAGE OF SKILLED NURSING DAYS
Medicare 11.0  % 10.9  % 13.5  % 13.7  % 10.6  % 7.3  % 11.3  % 11.2  %
Managed care 14.5  14.5  11.3  10.2  9.1  7.9  13.2  13.4 
Other skilled 6.2  5.6  4.6  3.6  4.7  3.3  5.8  5.1 
Skilled Mix 31.7   % 31.0   % 29.4   % 27.5   % 24.4   % 18.5   % 30.3   % 29.7   %
Private and other payors 10.1  10.7  8.7  9.8  13.7  16.1  10.3  10.8 

Medicaid 58.2  58.3  61.9  62.7  61.9  65.4  59.4  59.5 
TOTAL SKILLED NURSING
100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   %

Cost of Services

The following table sets forth total cost of services for our skilled services segment for the periods indicated (dollars in thousands):

  Three Months Ended September 30, Change
2025 2024 $ %

Cost of service $ 989,959  $ 824,152  $ 165,807  20.1  %
Revenue percentage 79.9  % 79.8  % 0.1  %

Cost of services for our skilled services segment increased by $165.8 million, or 20.1% compared to the same period in 2024. As a percentage of revenue, cost of services rose slightly to 79.9% from 79.8%. This increase was primarily driven by higher operational expense associated with recent acquisitions and insurance expense. Historically, our cost of services as a percentage of revenue varies depending on the volume of acquisitions during the period, which typically have higher costs during the transition period.

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Standard Bearer

  Three Months Ended September 30, Change
2025 2024 $ %

(Dollars in thousands)

Rental revenue generated from third-party tenants $ 4,976  $ 4,195  $ 781  18.6  %
Rental revenue generated from Ensign's independent subsidiaries
27,634  20,234  7,400  36.6 
TOTAL RENTAL REVENUE
$ 32,610   $ 24,429   $ 8,181   33.5   %
Segment income 9,622  7,274  2,348  32.3 
Depreciation and amortization 9,709  7,484  2,225  29.7 

FFO
$ 19,331   $ 14,758   $ 4,573   31.0   %

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $8.2 million, or 33.5%, to $32.6 million, compared to the three months ended September 30, 2024. The increase in revenue is primarily attributable to 26 real estate purchases, as well as annual rent increases since the three months ended September 30, 2024.

FFO — Our FFO increased by $4.6 million, or 31.0%, to $19.3 million, compared to the three months ended September 30, 2024. The increase in rental revenue of $8.2 million was partially offset by increases in interest expense of $3.6 million associated with the agreements between Standard Bearer and us as we continue to grow our real estate portfolio.
All Other Revenue

Our other revenue increased by $9.4 million, or 18.4%, to $60.6 million, compared to the three months ended September 30, 2024. Other revenue includes senior living revenue of $29.8 million, revenue from other ancillary services of $27.6 million and rental income of $3.2 million. The increase in other revenue is primarily attributable to the increase in occupancy in our senior living operations and growth in our other ancillary services.

Consolidated Financial Expenses
Rent-cost of services — Our rent-cost of services as a percentage of revenue decreased by 0.4% to 4.7%, as the expansions in our footprint have resulted from more real estate purchases than leased properties.
General and administrative expense — General and administrative expense increased $11.2 million or 19.9%, to $67.4 million. This increase was primarily driven by additional headcount due to acquisition activities and increases in wages and benefits due to enhanced performance and growth. General and administrative expense as a percentage of revenue remained consistent at 5.2%.
Depreciation and amortization — Depreciation and amortization expense increased $5.2 million, or 24.0%, to $26.6 million. This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations, which have a greater mix of real estate purchases than leases, and capital expenditure investments. Depreciation and amortization increased 0.2%, to 2.1%, as a percentage of revenue.
Other income, net — Other income, net as a percentage of revenue decreased by 0.1%. Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses. Other income, net increased by $1.0 million due to a $2.4 million realized gain on other investments not core to our business operations offset by a decrease in interest income of $1.4 million as we utilized our cash on hand to fund more real estate purchases during the period.
Provision for income taxes — Our effective tax rate was 21.3% for the three months ended September 30, 2025, compared to 20.4% for the same period in 2024. The effective tax rate for both periods was driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses including non-deductible compensation. See Note 13, Income Taxes , in the Notes to the Interim Financial Statements for further discussion.

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Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024
The following tables set forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

Nine Months Ended September 30, 2025
  Skilled Services Standard Bearer All Other Eliminations Consolidated
Total revenue $ 3,536,226  $ 92,479  $ 170,336  $ (101,826) $ 3,697,215 
Total expenses, including other income, net
3,089,165  65,148  318,117  (101,826) 3,370,604 
Segment income (loss) 447,061  27,331  (147,781) —  326,611 

Loss on long-lived assets
(1,073)
Income before provision for income taxes $ 325,538  

Nine Months Ended September 30, 2024
  Skilled Services Standard Bearer All Other Eliminations Consolidated
Total revenue $ 2,994,000  $ 69,984  $ 141,055  $ (76,806) $ 3,128,233 
Total expenses, including other income, net
2,616,517  48,092  257,759  (76,806) 2,845,562 
Segment income (loss) 377,483  21,892  (116,704) —  282,671 
Loss on long-lived assets
(2,335)
Income before provision for income taxes $ 280,336  

Our total revenue increased by $569.0 million, or 18.2%, compared to the nine months ended September 30, 2024. The increase in revenue was primarily driven by an increase in occupancy of 2.4% and 4.5% from our skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing daily revenue rates. In addition, our Recently Acquired Facilities revenue increased by $341.7 million, when compared to the same period in 2024, primarily as a result of acquisitions from October 1, 2024 through September 30, 2025.
Skilled Services Segment

Revenue

The following tables present the skilled services revenue and key performance metrics by category during the nine months ended September 30, 2025 and 2024:

Nine Months Ended September 30,
  2025 2024 Change % Change

TOTAL FACILITY RESULTS: (Dollars in thousands)
Skilled services revenue $ 3,536,226  2,994,000  $ 542,226  18.1  %
Number of facilities at period end 314  282  32  11.3  %
Number of campuses at period end (1)
31  29  2  6.9  %
Actual patient days 7,925,688  6,962,308  963,380  13.8  %
Occupancy percentage — Operational beds 81.8  % 80.4  % 1.4  % 1.7  %
Skilled mix by nursing days 30.8  % 30.2  % 0.6  % 2.0  %
Skilled mix by nursing revenue 49.4  % 48.8  % 0.6  % 1.2  %

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Nine Months Ended September 30,
  2025 2024 Change % Change

SAME FACILITY RESULTS: (2)(5)
(Dollars in thousands)
Skilled services revenue
$ 2,539,758  $ 2,391,099  $ 148,659  6.2  %
Number of facilities at period end 210  210  —  —  %
Number of campuses at period end (1)
25  25  —  —  %
Actual patient days 5,641,877  5,516,552  125,325  2.3  %
Occupancy percentage — Operational beds 82.6  % 80.7  % 1.9  % 2.4  %
Skilled mix by nursing days 32.4  % 31.2  % 1.2  % 3.8  %
Skilled mix by nursing revenue 51.3  % 49.5  % 1.8  % 3.6  %

Nine Months Ended September 30,
2025 2024 Change % Change

TRANSITIONING FACILITY RESULTS: (3)
(Dollars in thousands)
Skilled services revenue
$ 565,354  $ 512,950  $ 52,404  10.2  %
Number of facilities at period end 48  48  —  —  %
Number of campuses at period end (1)
2  2  —  —  %
Actual patient days 1,270,693  1,221,348  49,345  4.0  %
Occupancy percentage — Operational beds 84.0  % 80.4  % 3.6  % 4.5  %
Skilled mix by nursing days 29.7  % 27.8  % 1.9  % 6.8  %
Skilled mix by nursing revenue 50.9  % 48.9  % 2.0  % 4.1  %

Nine Months Ended September 30,
2025 2024 Change % Change

RECENTLY ACQUIRED FACILITY RESULTS: (4)
(Dollars in thousands)
Skilled services revenue
$ 431,114  $ 89,377  $ 341,737  NM
Number of facilities at period end 56  24  32  NM
Number of campuses at period end (1)
4  2  2  NM
Actual patient days 1,013,118  222,326  790,792  NM
Occupancy percentage — Operational beds 75.7  % 73.3  % NM NM
Skilled mix by nursing days 23.0  % 18.2  % NM NM
Skilled mix by nursing revenue 36.5  % 29.7  % NM NM

(1) Campus represents a facility that offers both skilled nursing and senior living services. Revenue and expenses related to skilled nursing and senior living services have been allocated and recorded in the respective operating segment.
(2) Same Facility results represent all facilities purchased prior to January 1, 2022.
(3) Transitioning Facility results represent all facilities purchased from January 1, 2022 to December 31, 2023.
(4) Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2024.
(5) Skilled services revenue and key performance metrics for a closed facility was not material and has been excluded from Same Facilities results during the nine months ended September 30, 2024. The facility was closed in 2024 as the program was transitioned from an intermediate care facility to a group home setting.

Skilled services revenue increased $542.2 million, or 18.1%, compared to the nine months ended September 30, 2024. The increases in skilled services revenue were across all payer types, including increases in Medicaid revenue of $243.8 million, or 17.4%, and managed care revenue of $113.0 million, or 19.4%.

The increase in skilled services revenue was primarily driven by strong occupancy and skilled mix performance across our skilled services operations. Our consolidated occupancy increased by 1.7% to 81.8% during the nine months ended September 30, 2025 compared to the same period in 2024 across all payors, with an increase in skilled days from our operations within Same Facilities and Transitioning Facilities.

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Revenue in our Same Facilities increased $148.7 million, or 6.2%, compared to the nine months ended September 30, 2024, due to increased occupancy, strong skilled days and revenue per patient day. Our continuous efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 9.8%, resulting from an increase in managed care days and revenue per patient day. We continued to grow our Medicare patient population in addition to capturing market share in the increases in Medicare Advantage enrollments of the overall Medicare eligible population. Our Medicare revenue increased by 3.6% due to an increase in Medicare days and revenue per day. In addition, our other skilled revenue has continued to increase as we support the needs of the local communities through the expansion of the Veterans Affairs programs.
Revenue in our Transitioning Facilities increased $52.4 million, or 10.2%, compared to the nine months ended September 30, 2024, due to improved occupancy growth, increases in skilled mix days and revenue per patient day. The increases in revenue were derived from managed care revenue of 21.9%, Medicare revenue of 3.6%, Medicaid revenue of 8.3% and private revenue of 27.8%. The increases are a result of an increase in patient days across all payer types, which reflect our operational fundamentals as we continue to transition and integrate these facilities.
Revenue in our Recently Acquired Facilities increased $341.7 million, compared to the nine months ended September 30, 2024. The 34 operational expansions between October 1, 2024 and September 30, 2025 across 12 states contributed $213.0 million of the total increase.
Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate lower overall occupancy during years of growth. In the future, if we acquire additional turnaround or start-up operations, we expect to see lower occupancy rates and skilled mix and these metrics are expected to vary from period to period based upon the type of the facilities and operations that we acquire.
The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate (1) :
Nine Months Ended September 30,
  Same Facility Transitioning Acquisitions Total
  2025 2024 2025 2024 2025 2024 2025 2024

SKILLED NURSING AVERAGE DAILY REVENUE RATES
Medicare $ 786.85  $ 747.58  $ 856.42  $ 817.25  $ 703.85  $ 626.48  $ 791.47  $ 759.90 
Managed care 575.83  550.62  604.73  562.97  542.99  464.39  576.91  550.73 
Other skilled 652.78  622.67  601.73  539.78  699.83  676.49  650.77  613.37 
Total skilled revenue 664.57  634.06  722.63  687.76  638.95  565.98  671.14  641.47 
Medicaid 304.21  295.85  291.76  276.00  329.49  300.15  305.55  292.35 
Private and other payors 295.80  279.88  313.36  287.13  344.46  285.54  306.74  281.39 
Total skilled nursing revenue
$ 420.23  $ 399.71  $ 421.69  $ 391.80  $ 402.80  $ 346.21  $ 418.26  $ 396.61 

(1) The rates are based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606.

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.3% and 4.8%, respectively, compared to the nine months ended September 30, 2024. The increases are attributable to the 4.2% net market basket increase that became effective in October 2024 as well as a shift toward higher acuity patients. As hospitals continue to discharge individuals with more complex medical conditions to skilled nursing facilities, we are experiencing a greater proportion of higher acuity patients, which necessitates more advanced and specialized care.

Our average Medicaid rates increased 4.5% due to state reimbursement increases, our participation in Medicaid supplemental payment and quality improvement programs in various states.
Payor Sources as a Percentage of Skilled Nursing Services — We use our skilled mix as a measure of the quality of reimbursements we receive at our independent skilled nursing facilities over various periods.

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The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:

  Nine Months Ended September 30,
  Same Facility Transitioning Acquisitions Total
  2025 2024 2025 2024 2025 2024 2025 2024

PERCENTAGE OF SKILLED NURSING REVENUE
Medicare 21.4  % 20.9  % 28.4  % 29.2  % 17.0  % 13.8  % 22.0  % 22.1  %
Managed care 20.5  19.9  16.4  14.7  12.4  10.3  18.8  18.7 
Other skilled 9.4  8.7  6.1  5.0  7.1  5.6  8.6  8.0 
Skilled mix 51.3   % 49.5   % 50.9   % 48.9   % 36.5   % 29.7   % 49.4   % 48.8   %
Private and other payors 6.9  7.3  6.7  7.6  12.0  13.1  7.5  7.5 

Medicaid 41.8  43.2  42.4  43.5  51.5  57.2  43.1  43.7 
TOTAL SKILLED NURSING 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   %

  Nine Months Ended September 30,
  Same Facility Transitioning Acquisitions Total
  2025 2024 2025 2024 2025 2024 2025 2024

PERCENTAGE OF SKILLED NURSING DAYS
Medicare 11.4  % 11.2  % 14.0  % 14.0  % 9.7  % 7.7  % 11.6  % 11.6  %
Managed care 14.9  14.4  11.4  10.2  9.2  7.7  13.6  13.5 
Other skilled 6.1  5.6  4.3  3.6  4.1  2.8  5.6  5.1 
Skilled mix 32.4   % 31.2   % 29.7   % 27.8   % 23.0   % 18.2   % 30.8   % 30.2   %
Private and other payors 9.9  10.4  9.0  10.4  14.1  15.8  10.2  10.6 

Medicaid 57.7  58.4  61.3  61.8  62.9  66.0  59.0  59.2 
TOTAL SKILLED NURSING 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   %

Cost of Services

The following table sets forth total cost of services for our skilled services segment for the periods indicated (dollars in thousands):

  Nine Months Ended September 30, Change
2025 2024 $ %

Cost of service $ 2,814,637  $ 2,383,742  $ 430,895  18.1  %
Revenue percentage 79.6  % 79.6  % —  %

Cost of services related to our skilled services segment increased by $430.9 million, or 18.1%, from the same period in 2024. Cost of services as a percentage of revenue remained consistent at 79.6% as we continued to see stabilization in the labor markets. In addition, our cost of services as a percentage of revenue varies depending on the volume of acquisitions during the period, which typically have higher costs during the transition period.

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Standard Bearer

  Nine Months Ended September 30, Change
2025 2024 $ %

(Dollars in thousands)
Rental revenue generated from third-party tenants $ 14,185  $ 12,588  $ 1,597  12.7  %
Rental revenue generated from Ensign's independent subsidiaries
78,294  57,396  20,898  36.4 
TOTAL RENTAL REVENUE $ 92,479   $ 69,984   $ 22,495   32.1   %
Segment income 27,331  21,892  5,439  24.8 
Depreciation and amortization 27,450  21,479  5,971  27.8 

FFO $ 54,781   $ 43,371   $ 11,410   26.3   %

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $22.5 million, or 32.1%, to $92.5 million, compared to the nine months ended September 30, 2024. The increase in revenue is primarily attributable to 26 real estate purchases as well as annual rent increases since the nine months ended September 30, 2024.
FFO — Our FFO increased by $11.4 million, or 26.3%, to $54.8 million, compared to the nine months ended September 30, 2024. The increase in rental revenue of $22.5 million is offset by increases in interest expense of $10.3 million associated with the debt arrangements between Standard Bearer and us as Standard Bearer continues to grow its real estate portfolio.
All Other Revenue
Our other revenue increased by $29.3 million, or 20.8%, to $170.3 million, compared to the nine months ended September 30, 2024. Other revenue for the nine months ended September 30, 2025 includes senior living revenue of $81.5 million, revenue from other ancillary services of $79.4 million and rental income of $9.4 million. The increase in other revenue is primarily attributable to our senior living and other ancillary services.
Consolidated Financial Expenses
Rent-cost of services — Our rent-cost of services as a percentage of revenue decreased by 0.3% to 4.8%, as the expansions in our footprint have resulted from more real estate purchases than leased properties.
General and administrative expense — General and administrative expense increased by $29.5 million or 17.4%, to $199.0 million. This increase was primarily driven by additional headcount due to acquisition activities and increases in wages and benefits due to enhanced performance and growth. General and administrative expense as a percentage of revenue remained consistent at 5.4%.
Depreciation and amortization — Depreciation and amortization expense increased by $15.0 million, or 24.3%, to $76.6 million. This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations, which have a greater mix of real estate purchases than leases, and capital expenditure investments. Depreciation and amortization increased 0.1%, to 2.0%, as a percentage of revenue.
Other income, net — Other income, net as a percentage of revenue decreased by 0.1%. Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses. Other income, net increased by $1.2 million due to a $2.4 million realized gain on other investments not core to our business operations and a $1.2 million gain on our deferred compensation plan offset by a decrease in interest income of $2.9 million as we utilized our cash on hand to fund more real estate purchases during the period. Changes in our deferred compensation plan are a result of gains or losses depending on market performance.
Provision for income taxes — Our effective tax rate was 23.6% for the nine months ended September 30, 2025, compared to 22.0% for the same period in 2024. The effective tax rate for both periods was driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses, including non-deductible compensation. See Note 13, Income Taxes , in the Interim Financial Statements for further discussion.

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Liquidity and Capital Resources
Our principal sources of liquidity have historically been derived from our cash flows from operations and long-term debt issuance secured by our real property and borrowings under our revolving Credit Facility (defined below). Our liquidity as of September 30, 2025 is impacted by cash generated from strong operational performance offset by investments made for our operational expansions as well as capital expenditures to improve the quality of care at our existing operations.
Historically, we have primarily financed the majority of our acquisitions through mortgages on our properties, our Credit Facility and cash generated from operations. Cash paid to fund acquisitions was $240.3 million for the nine months ended September 30, 2025 compared to $87.2 million for the nine months ended September 30, 2024. Total capital expenditures for property and equipment were $143.7 million and $110.1 million for the nine months ended September 30, 2025 and 2024, respectively. We currently have approximately $180.0 million budgeted for renovation projects in 2025. We believe our current cash balances, our cash flow from operations and the amounts available for borrowing under our Credit Facility will be sufficient to cover our operating needs for at least the next 12 months.

We may, in the future, seek to raise additional capital to fund growth, capital renovations, operations and other business activities, but such additional capital may not be available on acceptable terms, on a timely basis, or at all.
Our cash and cash equivalents of approximately $443.7 million as of September 30, 2025 consisted of bank deposits and money market funds. In addition, as of September 30, 2025, we held investments of approximately $231.8 million. We believe our investments that were in an unrealized loss position as of September 30, 2025 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so.

Our primary source of cash is from our ongoing operations. Our positive cash flows have supported our business and have allowed us to pay regular dividends to our stockholders. We currently anticipate that existing cash and total investments as of September 30, 2025, along with projected operating cash flows and available financing, will support our normal business operations for the foreseeable future.
Share Repurchases
On May 15, 2025, the Board of Directors approved a stock repurchase program pursuant to which we are authorized to repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from June 16, 2025. During the second quarter of 2025, we did not repurchase any shares pursuant to this stock repurchase program.
On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which we were authorized to repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from March 26, 2025. During the first quarter of 2025, we repurchased 84 shares of our common stock for $10.8 million. During the second quarter of 2025, we repurchased 73 shares of our common stock for $9.2 million. This repurchase program expired upon the repurchase of the fully authorized amount under the plan and is no longer in effect.
Under our repurchase program, we are authorized to repurchase our issued and outstanding common shares from time to time in open-market and privately negotiated transactions, tender offers, pursuant to contractual provisions, and block trades, or otherwise in accordance with federal securities laws. The stock repurchase programs do not obligate us to acquire any specific number of shares. Any such repurchases will depend on our business strategy, prevailing market conditions, our liquidity requirements, contractual restrictions or covenants, compliance with securities laws, and other factors. The amounts involved in any such transaction may be material.

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The following table presents selected data from our condensed consolidated statement of cash flows for the periods presented:

Nine Months Ended September 30,
  2025 2024

NET CASH PROVIDED BY/(USED IN): (In thousands)
Operating activities $ 380,950  $ 246,730 
Investing activities (389,237) (223,465)
Financing activities (12,643) (825)

Net (decrease)/increase in cash and cash equivalents $ (20,930) $ 22,440  
Cash and cash equivalents beginning of period 464,598  509,626 

Cash and cash equivalents at end of period $ 443,668   $ 532,066  

Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in operating assets and liabilities.
The $134.2 million increase in cash provided by operating activities for the nine months ended September 30, 2025 compared to the same period in 2024 w as due to an increase in operational performance and timing of payments and accounts receivable collections.
Investing Activities
Investing cash flows consist primarily of capital expenditures, investment activities, insurance proceeds and cash used for acquisitions.
The $165.8 million increase in cash used in investing activities for the nine months ended September 30, 2025 compared to the same period in 2024 was primarily used for acquisitions and capital expenditures.
Financing Activities
Financing cash flows consist primarily of cash provided by the issuance of common stock upon exercise of stock options, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt and payment for share repurchases.
The $11.8 million increase in cash used by financing activities for the nine months ended September 30, 2025 compared to the same period in 2024, was primarily due to $20.0 million of share repurchases in 2025 as part of our stock repurchase program offset by an increase in cash provided by the issuance of stock options.
Credit Facility with a Lending Consortium Arranged by Truist

We maintain a revolving credit facility with Truist Securities (Truist) (the Credit Facility) with availability of up to $600.0 million in aggregate principal. The maturity date of the Credit Facility is April 8, 2027. Borrowings are supported by a lending consortium arranged by Truist. The interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.25% to 1.25% per annum or SOFR plus a margin ranging from 1.25% to 2.25% per annum, based on the Consolidated Total Net Debt to Consolidated EBITDA ratio (as defined in the Credit Facility). In addition, there is a commitment fee on the unused portion of the commitments that ranges from 0.20% to 0.40% per annum, depending on the Consolidated Total Net Debt to Consolidated EBITDA ratio.
Mortgage Loans and Promissory Note
As of September 30, 2025, 23 of our subsidiaries had mortgage loans insured with HUD for an aggregate amount of $144.3 million, which subjects these subsidiaries to HUD oversight and periodic inspections. The mortgage loans bear effective interest rates at a range of 3.1% to 4.2%, including fixed interest rates at a range of 2.4% to 3.3% per annum. In addition to the interest rate, we incur other fees for HUD placement, including but not limited to audit fees. Amounts borrowed under the mortgage loans may be prepaid, subject to prepayment fees of the principal balance on the date of prepayment. For the majority of the loans, during the first three years, the prepayment fee is 10.0%, and is reduced by 3.0% in the fourth year of the loan, and reduced by 1.0% per year for years five through ten of the loan. There is no prepayment penalty after year ten. The terms for all the mortgage loans are 25 to 35 years.
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In addition to the HUD mortgage loans, one of our subsidiaries has a promissory note that bears a fixed interest rate of 5.3% per annum and has a term of 12 years. The note, which was used for an acquisition, is secured by the real property comprising the facility and the rent, issues and profits thereof, as well as all personal property used in the operation of the facility.
Operating Leases
As of September 30, 2025, 249 of our facilities have long-term lease arrangements, of which 104 of the operations are under eight triple-net Master Leases with CareTrust. The Master Leases consist of multiple leases, each with its own pool of properties, that have varying maturities and diversity in property geography. Under each master lease, our individual subsidiaries that operate those properties are the tenants and CareTrust's individual subsidiaries that own the properties subject to the Master Leases are the landlords. The rent structure under the Master Leases includes a fixed component, subject to annual escalation equal to the lesser of the percentage change in the Consumer Price Index (but not less than zero) or 2.5%. At our option, we can extend the Master Leases for two or three five-year renewal terms beyond the initial term, on the same terms and conditions. If we elect to renew the term of a Master Lease, the renewal will be effective as to all, but not less than all, of the leased property then subject to the Master Lease.
We also lease certain facilities and our administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from five to 20 years and are subject to annual escalation equal to the percentage change in the Consumer Price Index with a stated cap percentage. In addition, we lease certain of our equipment under non-cancelable operating leases with initial terms ranging from three to five years. Most of these leases contain renewal options, certain of which involve rent increases.
Our 102 independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases from CareTrust, are operated under 18 separate Master Leases. Under these master leases, a default at a single facility could subject one or more of the other independent subsidiaries covered by the same master lease to the same default risk. Failure to comply with Medicare and Medicaid provider requirements is a default under several of our leases, master lease agreements and debt financing instruments. In addition, other potential defaults related to an individual facility may cause a default of an entire master lease portfolio and could trigger cross-default provisions in our outstanding debt arrangements and other leases. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.
Inflation

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 based upon the state’s fiscal year for the Medicaid programs and in each October for the Medicare program. These adjustments may not continue in the future, and even if received, such adjustments may not reflect the actual increase in our costs for providing healthcare services.

Labor, supply expenses and capital expenditures make up a substantial portion of our cost of services. Those expenses can be subject to increase in periods of rising inflation, tariffs enforcement and when labor shortages occur in the marketplace. To date, we have generally been able to implement cost control measures or obtain increases in reimbursement sufficient to offset increases in these expenses. There can be no assurance that we will be able to anticipate fully or otherwise respond to any future inflationary pressures.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk — We are exposed to risks associated with market changes in interest rates through our borrowing arrangements and investments. In particular, our Credit Facility exposes us to variability in interest payments due to changes in SOFR interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our mortgages and promissory note require principal and interest payments through maturity pursuant to amortization schedules.
Our mortgages generally contain provisions that allow us to make repayments earlier than the stated maturity date. In some cases, we are not allowed to make early repayment prior to a cutoff date. Where prepayment is permitted, we are generally allowed to make prepayments only at a premium which is often designed to preserve a stated yield to the note holder. These prepayment rights may afford us opportunities to mitigate the risk of refinancing our debts at maturity at higher rates by refinancing prior to maturity.
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We have a Credit Facility with Truist of up to $600.0 million in aggregate principal. We have no outstanding borrowings under our Credit Facility as of September 30, 2025 and through the filing date of this report. In addition, we have outstanding indebtedness under mortgage loans insured with HUD and a promissory note payable to a third party of $145.4 million, all of which are at fixed interest rates.
Our cash and cash equivalents as of September 30, 2025 consisted of bank term deposits, money market funds and U.S. Treasury bill related investments. In addition, as of September 30, 2025, we held investments of approximately $231.8 million. We believe our investments that were in an unrealized loss position as of September 30, 2025 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so. Our market risk exposure is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. The primary objective of our investment activities is to preserve principal, while at the same time maximizing the income we receive from our investments without significantly increasing risk. We invest in marketable securities with the positive intent and ability to hold to maturity. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities portfolio.
The above only incorporates those exposures that exist as of September 30, 2025 and does not consider those exposures or positions which could arise after that date. If we diversify our investment portfolio into securities and other investment alternatives, we may face increased risk and exposures as a result of interest risk and the securities markets in general.

Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

Item 1.     LEGAL PROCEEDINGS
Indemnities — From time to time, we enter into contracts that contingently require us to indemnify parties against third-party claims. These contracts primarily include (i) certain real estate leases, under which we may be required to indemnify property owners or prior facility operators for post-transfer environmental or other liabilities and other claims arising from our use of the applicable premises, (ii) operations transfer agreements, in which we agree to indemnify past operators of facilities we acquire against certain liabilities arising from the transfer of the operation and/or the operation thereof after the transfer to our independent subsidiary, (iii) certain lending agreements, under which we may be required to indemnify the lender against various claims and liabilities, and (iv) certain agreements with our officers, directors and others, under which we may be required to indemnify such persons for liabilities based on the nature of their relationship to us. The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar amount. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, because no claims have been asserted, no liabilities have been recorded for any such potential obligation on our balance sheets for any of the periods presented.
Litigation and Regulatory Matters — Laws and regulations governing Medicare and Medicaid programs are complex and subject to review and interpretation. Compliance with such laws and regulations is evaluated regularly, the results of which can be subject to future governmental review and interpretation and can include significant regulatory action with the possibility of fines, penalties, and exclusion from certain governmental programs. Included in these laws and regulations is the Health Insurance Portability and Accountability Act of 1996 (monitored and enforced by the Office of Civil Rights), the terms of which require healthcare providers (among other things) to safeguard the privacy and security of certain patient protected health information.

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We and our independent subsidiaries are party to various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of business, including claims that services provided to patients by our independent subsidiaries have resulted in injury or death, and claims related to employment and commercial matters. For example, in a four-week medical negligence trial in the State of Arizona, the jury returned a verdict against one of our independent subsidiaries in late November 2023. We are in the process of appealing the jury verdict. We have in the past appealed similar decisions and have, in some circumstances, received decisions in our favor. Although we intend to vigorously defend against these claims and in general these types of claims and cases, there can be no assurance that the outcomes of these matters will not have a material adverse effect on operational results and financial condition. Additionally, in certain states in which we have or have had independent subsidiaries, insurance coverage for the risk of punitive damages arising from general and professional liability litigation may not be available due to state law and/or public policy prohibitions. There can be no assurance that we and or our independent subsidiaries will not be liable for punitive damages awarded in litigation arising in states for which punitive damage insurance coverage is not available.
The skilled nursing and post-acute care industry is heavily regulated. As such, we and our independent subsidiaries are continuously subject to state and federal regulatory scrutiny, supervision and intervention in the ordinary course of business. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition to being subject to regulatory oversight from state and federal agencies, the skilled nursing and post-acute care industry is also subject to regulatory requirements which, if noncompliance is identified, could result in civil, administrative or criminal fines, penalties or restitutionary relief, and/or reimbursement; authorities could also seek the suspension or exclusion of a provider or individual from participation in State and Federal healthcare programs. We believe that there has been, and will continue to be, an increase in governmental investigations of post-acute providers, particularly in alleged Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in civil legal proceedings or governmental investigations, whether currently asserted or arising in the future, could have a material adverse effect on our financial position, results of operations, and cash flows. Additionally, such proceedings and/or investigations can be a distraction to the business of our independent subsidiaries.
We, on behalf of our independent subsidiaries, received a Civil Investigative Demand (CID) from the U.S. Department of Justice (DOJ) in January of 2024 indicating that the DOJ is investigating the Company to determine whether claims have been submitted to Medicare and Texas Medicaid for services which were unnecessary or otherwise not consistent with existing reimbursement requirements. The CID covers the period from January 1, 2016 to the present. As a general matter, our independent subsidiaries maintain policies and procedures to promote compliance with all applicable Medicare and Medicaid requirements, including but not limited to those relating to the presentation of claims for reimbursement for services provided. We are fully cooperating with the DOJ in response to the CID. However, we cannot predict the outcome of the investigation or its potential impact to the consolidated financial statements.
In addition to the potential lawsuits and claims described above, we and our independent subsidiaries are also subject to potential lawsuits under the FCA and comparable state laws alleging the submission of fraudulent claims for services to any Federal and State healthcare program (such as Medicare or Medicaid). A violation may provide the basis for exclusion from federally funded healthcare programs. Such exclusions could also have a correlative negative impact on our financial performance. In addition, and pursuant to the qui tam or "whistleblower" provisions of the FCA, a private individual with knowledge of fraud or potential fraud may bring a claim on behalf of the Federal government, and receive a percentage of any recovery obtained. Due to these whistleblower incentives, qui tam lawsuits have become more frequent.
For example, on May 31, 2018, we, on behalf of our independent subsidiaries, received a CID from the DOJ stating that it was investigating to determine whether there had been a violation of the FCA and/or the Anti-Kickback Statute (AKS) with respect to the relationships between certain of our independent subsidiaries and persons who serve or have served as medical directors. We fully cooperated with the DOJ and promptly responded to its requests for information. In April 2020, we were advised that the DOJ declined to intervene in any subsequent action filed in connection with the subject matter of this investigation. Despite the decision of the DOJ to decline to participate in litigation based on the subject matter of its previously issued CID, the involved qui tam relator moved forward with the complaint in December 2020. From that time until December 2023, and notwithstanding our success in early pre-trial motions, we continued to incur legal defense costs and fees, including significant amounts related to the mandatory exchange of information between the parties in the fourth quarter of 2023. In 2024, we entered into mediation with the involved parties and agreed to settle the civil case for $48.0 million. Following the finalization of the settlement documents and payment of the settlement funds, the qui tam complaint was dismissed and the matter was fully resolved. The settlement does not include admissions on the part of the Company or our independent subsidiaries, and we maintain that we have consistently complied with and continue to comply with all applicable State and Federal statutes (including but not limited to the FCA and the AKS).

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In addition to the FCA, some states, including California, Arizona and Texas, have enacted similar whistleblower and false claims laws and regulations. Further, the Deficit Reduction Act of 2005 created incentives for states to enact anti-fraud legislation modeled on the FCA. As such, we and our independent subsidiaries could face increased scrutiny, potential liability and legal expenses and costs based on claims under state false claims acts in markets where our independent subsidiaries do business.
Under the Fraud Enforcement and Recovery Act of 2009 (FERA), health care providers face significant penalties for the knowing retention of government overpayments, even if no false claim was involved. Health care providers can now be liable for knowingly and improperly avoiding or decreasing an obligation to pay money or property to the government. This includes the retention of any government overpayment. The government can argue, therefore, that an FCA violation can occur without any affirmative fraudulent action or statement, if the action or statement is knowingly improper. In addition, FERA extended protections against retaliation for whistleblowers, including protections not only for employees, but also contractors and agents. Thus, an employment relationship is generally not required in order to qualify for protection against retaliation for whistleblowing.
Healthcare litigation (including class action litigation) is common and is filed based upon a wide variety of claims and theories. We and our independent subsidiaries have been subjected to, and/or are currently involved in, class action litigation alleging violations (alone or in combination) of state and federal wage and hour law related to the alleged failure to pay wages, to timely provide and compensate meal and rest breaks, and other such similar causes of action.
We and our independent subsidiaries have been, and continue to be, subject to claims, findings and legal actions that arise in the ordinary course of the various businesses, including in connection with the delivery of healthcare and non-healthcare services. These claims include but are not limited to potential claims related to patient care and treatment (professional negligence claims) as well as employment related claims. During the three months ended September 30, 2025, we agreed to settle substantially all alleged wage, hour or labor code-related violations asserted on a class or representative basis against our independent subsidiaries in California for purported violations occurring during the six year period ending December 2025, for $12.0 million, pending court approval. While we have been able to settle or otherwise resolve many of these types of claims without an ongoing material adverse effect on our business, a significant increase in the number of these claims, or an increase in the amounts owed should plaintiffs be successful in their prosecution of remaining or future claims, could materially adversely affect our business, financial condition, results of operations and cash flows. In addition, these claims could impact our ability to procure insurance to cover our exposure related to the various services provided by our independent subsidiaries to their residents, customers and patients.
From time to time, various state or Federal agencies may issue requests for information, including but not limited to a subpoena. As an example, OHCA is currently conducting a CMIR with respect to specific components of a proposed transaction involving several of our California operations. We have been and will continue to communicate with OHCA regarding all correspondence and informational requests related to the CMIR.
Both government and private pay sources have instituted cost-containment measures designed to limit payments made to providers of healthcare services, and there can be no assurance that future measures designed to limit payments made to providers will not adversely affect us.
Medicare Revenue Recoupments — We and our independent subsidiaries are subject to regulatory reviews relating to the provision of Medicare services, billings and potential overpayments resulting from reviews conducted via RAC, various Program Safeguard Contractors and Medicaid Integrity Contractors (collectively referred to as Reviews). Reviews vary in claim selection size and processes, ranging from a single episode/claim to larger, multi-claim batches; and from single rounds of review to reviews of multiple rounds with pass/fail criteria. If an operation has a significant error or fails a Review and/or subsequent Reviews, the operation could then be subject to extended review or an extrapolation of the identified error rate to billings in the same time period. We anticipate that these Reviews could increase in frequency in the future. As of September 30, 2025 and through the filing date of this report, 14 of our independent subsidiaries had multi-claim Reviews scheduled or in process.

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Item 1A. RISK FACTORS
We are providing the following summary of the risk factors contained in our Form 10-Q to enhance the readability and accessibility of our risk factor disclosures. We encourage our stockholders to carefully review the risk factors contained in this Form 10-Q in their entirety for additional information regarding the risks and uncertainties that could cause our actual results to vary materially from recent results or from our anticipated future results.

Risks Related to our Business and Industry

• The rules of Medicare and Medicaid, including reductions of reimbursement rates, changes to spending requirements, data reporting, measurement and evaluation standards could have a material, adverse effect on our revenues, financial condition and results of operations.
• State-level direct spending requirements could negatively impact our results of operations.
• Changes to the U.S. healthcare system, both at a state and federal level, including recent regulations, new transparency and disclosure requirements, and potential spending levels, continue to impose new requirements upon us that could materially impact our business.
• Anticipated changes in the U.S. political environment, including those as a result of the change in Presidential administration and control of Congress, and to regulatory agencies, particularly HHS, may result in significant changes to regulatory framework, enforcements, reimbursements and our business.
• 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, loss of licensure, the imposition of fines and sanctions.
• We are subject to extensive and complex laws and government regulations. If we are not operating in compliance with these laws and regulations or if these laws and regulations change, we could be required to make significant expenditures or change our operations in order to bring our facilities and operations into compliance.
• Public and government calls for increased enforcement efforts toward SNFs, past and potential rulemaking that results in enhanced enforcement and penalties, and new guidance for surveyors regarding the review of SNFs and enforcement of their Requirements of Participation, could result in increased scrutiny by state and federal survey agencies, including sanctions that could negatively affect our financial condition and results of operations.
• CMS’s changes to the SFF program and its look-back period may create greater risk of our facilities being subject to this program and subject to potential fines and sanctions, even after graduating from the SFF program.
• Future cost containment initiatives undertaken by payors may limit our revenue and profitability.
• Reductions in reimbursements for physician and non-physician services could impact reimbursement for medical professionals.
• We may be subject to increased investigation and enforcement activities related to HIPAA violations.
• Security breaches and other cyber-security incidents could violate security laws and subject us to significant liability.
• If our independent subsidiaries are not fully reimbursed for all services for which each facility bills through consolidated billing, our revenue, financial condition and results of operations could be adversely affected.
• Increased competition for, or a shortage of, nurses and other skilled personnel, could increase our staffing and labor costs and subject us to monetary fines resulting from a failure to maintain minimum staffing requirements under state law, or may affect reimbursement.
• Annual caps, uncertainty regarding reimbursement and other cost-reductions for outpatient therapy services may reduce our future revenue and profitability or cause us to incur losses.
• Increased scrutiny of our activities and billing practices by the OIG or other regulatory authorities may result in an increase in regulatory monitoring and oversight, decreased reimbursement rates, or otherwise adversely affect our business, financial condition and results of operations.
• State efforts to regulate or deregulate the healthcare services industry or the construction or expansion of healthcare facilities could impair our ability to expand our operations, or could result in increased competition.
• Newly enacted legislation in the States where our independent subsidiaries are located may impact the volume and exposure in claims filed and the overall cost of those cases from a defense and indemnity standpoint.
• Changes to federal and state employment-related laws and regulations could increase our cost of doing business.
• 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.
• Compliance with federal and state fair housing, fire, safety, staffing, and other regulations may require us to incur unexpected expenses, which could be costly to us.
• Our revenue, financial condition and results of operations could be negatively impacted by any changes in the acuity mix of patients in our independent subsidiaries as well as payor mix and payment methodologies.
• We are subject to litigation that could result in significant legal costs and large settlement amounts or damage awards. Similarly, a change in the enforceability of arbitration provisions between SNFs and senior living facilities and residents and patients may affect the risks we face from claims and potential litigation.
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• If our regular internal investigations into the care delivery, recordkeeping and billing processes of our independent subsidiaries detect instances of noncompliance, efforts to correct such non-compliance could materially decrease our revenue.
• The OHCA CMIR has the potential to delay, and ultimately prevent, proposed transactions and require disclosure of confidential information.
• We may be unable to complete future facility or business acquisitions at attractive prices or at all, or may elect to dispose of underperforming or non-strategic independent subsidiaries, either of which could decrease our revenue.
• We may not be able to successfully integrate acquired facilities and businesses into our operations, or we may be exposed to costs, liabilities and regulatory issues that may adversely affect our operations.
• In undertaking acquisitions, we may be adversely impacted by costs, liabilities and regulatory issues that may adversely affect our operations.
• If we do not achieve or maintain competitive quality of care ratings from CMS or private organizations engaged in similar monitoring activities, which frequently change, our business may be negatively affected.
• If we are unable to obtain insurance, or if insurance becomes more costly for us to obtain, our business may be adversely affected, and our self-insurance programs may expose us to significant and unexpected costs and losses.
• The geographic concentration of our independent subsidiaries could leave us vulnerable to economic downturn, regulatory changes or acts of nature in those areas.
• The actions of a national labor union that has pursued a negative publicity campaign criticizing our business in the past may adversely affect our revenue and our profitability.
• The risks associated with leased property where our independent subsidiaries operate could adversely affect our business, financial position or results of operations.
• Failure to generate sufficient cash flow to cover required payments or meet operating covenants under our long-term debt, mortgages and long-term operating leases could result in defaults under such agreements and cross-defaults under other debt, mortgage or operating lease arrangements, which could harm our independent subsidiaries and cause us to lose facilities or experience foreclosures.
• A continued housing slowdown or housing downturn could decrease demand for senior living services.
• As we continue to acquire and lease real estate assets, we may not be successful in identifying and consummating these transactions.
• As we expand our presence in other relevant healthcare industries, we would become subject to risks in a market in which we have limited experience.
• If our referral sources fail to view us as an attractive skilled nursing provider, or if our referral sources otherwise refer fewer patients, our patient base may decrease.
• We may need additional capital to fund our independent subsidiaries and finance our growth, and we may not be able to obtain it on terms acceptable to us, or at all, which may limit our ability to grow.
• Delays in reimbursement may cause liquidity problems.
• The utilization and expansion of managed care organizations may contribute to delays or reductions in our reimbursement, including Managed Medicaid.
• Compliance with the regulations of the Department of Housing and Urban Development may require us to make unanticipated expenditures which could increase our costs.
• Failure to safeguard our patient trust funds may subject us to citations, fines and penalties.
• We are a holding company with no operations and rely upon our multiple independent subsidiaries.
• Our implementation of a new enterprise resource planning (ERP) system may adversely affect our business and results of operations or the effectiveness of our internal controls over financial reporting.
• Certain directors who serve on our Board of Directors also serve as directors of Pennant, and ownership of shares of Pennant common stock by our directors and executive officers may create, or appear to create, conflicts of interest.
• Standard Bearer's failure to qualify as a REIT may cause it to be subject to U.S. federal income tax. Additionally, legislative or other actions affecting REITs could have a negative effect on Standard Bearer.
• Failure to comply with existing environmental laws could result in increased expenditures, litigation and potential loss to our business and in our asset value.

Risks Related to Ownership of our Common Stock
• We may not be able to pay or maintain dividends and the failure to do so would adversely affect our stock price.
• Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.

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Risks Related to Our Business and Industry