SEC EDGAR · 10-Q

10-Q – 2026-04-30 – ensg-20260331.htm

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Omsättning

(In thousands, except per share data) | REVENUE | Service revenue $ 1,382,303 $ 1,167,040
REVENUE | Service revenue $ 1,382,303 $ 1,167,040 | Rental revenue 6,893 6,001
Service revenue $ 1,382,303 $ 1,167,040 | Rental revenue 6,893 6,001 | TOTAL REVENUE $ 1,389,196 $ 1,173,041
Rental revenue 6,893 6,001 | TOTAL REVENUE $ 1,389,196 $ 1,173,041
1. DESCRIPTION OF BUSINESS | The Company — The Ensign Group, Inc. (collectively, Ensign or the Company), is a holding company with no direct operating assets, employees or revenue. The Company's independent subsidiaries provide health care services across the post-acute care continuum and engage in the ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare-related properties and ancillary businesses. As of March 31, 2026, the Company's independent subsidiaries operated 378 fac | As of March 31, 2026, the Company's independent subsidiaries operated 254 facilities under long-term lease arrangements and had options to purchase eight of those 254 facilities. The Company's real estate portfolio consists of 160 owned real estate properties, which includes 124 facilities operated and managed by the Company's independent subsidiaries, 36 operations leased to and operated by third-party operators and the Service Center (defined below) location. Of those 36 third-party operations
To support its growth efforts and operational needs, the Company maintains a centralized support structure through its Service Center and captive insurance subsidiary, which provide essential services and risk management to its wholly-owned independent subsidiaries. Certain of the Company’s wholly-owned independent subsidiaries, collectively referred to as the Service Center, provide specific accounting, payroll, human resources, compliance, information technology, legal, risk management and oth | Each of the Company's wholly-owned independent subsidiaries has its own management, employees and assets. References herein to the consolidated “Company” and “its” assets and activities in this Quarterly Report are not meant to imply, nor should it be construed as meaning that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Ensign Group, Inc. | Other Information — The accompanying condensed consolidated financial statements as of March 31, 2026 and for the three months ended March 31, 2026 and 2025 (collectively, the Interim Financial Statements) are unaudited. Certain information and note disclosures normally included in the annual consolidated financial statements have been condensed or omitted, as permitted under applicable rules and regulations. Readers of the Interim Financial Statements should refer to the Company’s audited conso
Basis of Presentation — The accompanying Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The Company is the sole member or stockholder of various consolidated limited liability companies and corporations established to operate various acquired skilled nursing operations, senior living operations and related ancillary services. All intercompany transactions and balances have been eliminated in consolidation. | The preparation of the Interim Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Interim Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates in the Company’s Interim Financial Statements relate to revenue, acquired property and equipment, goo | Recent Accounting Pronouncements — Except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws and a limited number of grandfathered standards, the FASB ASC is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. For any new pronouncements announced, the Company considers whether the new pronouncements could alter previous generally accepted accounting principles and determ
3. REVENUE AND ACCOUNTS RECEIVABLE

EBITDA

The Company maintains a revolving credit facility between the Company and its independent subsidiaries, including Standard Bearer as co-borrowers, and Truist Securities (Truist) (the Credit Facility) with a revolving line of credit of up to $ 600,000 in aggregate principal amount with a maturity date of 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 the Company's option, equal to either
Borrowings made under the Credit Facility are guaranteed, jointly and severally, by certain of the Company’s wholly-owned subsidiaries, and are secured by a pledge of stock of the Company's material independent subsidiaries as well as a first lien on substantially all of such independent subsidiaries' personal property. The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent subsidiaries to | Mortgage Loans and Promissory Note
1.85 1.52 | EBITDA 152,681 125,846
Adjusted EBITDA 171,160 137,385
The following discussion includes references to Adjusted EBT, Adjusted net income, Adjusted earnings per share, 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 financ
Adjusted earnings per share is calculated by dividing adjusted net income by the weighted‑average diluted shares outstanding for the applicable period. | 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

Periodens resultat

NET INCOME $ 99,756 $ 80,353 | Less:
Net income attributable to noncontrolling interests 88 76 | NET INCOME ATTRIBUTABLE TO THE ENSIGN GROUP, INC.
Net income attributable to noncontrolling interests 88 76 | NET INCOME ATTRIBUTABLE TO THE ENSIGN GROUP, INC. | $ 99,668 $ 80,277
NET INCOME PER SHARE ATTRIBUTABLE TO THE ENSIGN GROUP INC.
Net income attributable to noncontrolling interest — — — — — — 88 88 | Noncontrolling interests attributable to subsidiary equity plan — — ( 61 ) — — — 260 199
Noncontrolling interests attributable to subsidiary equity plan — — ( 61 ) — — — 260 199 | Net income attributable to the Ensign Group, Inc. — — — 99,668 — — — 99,668 | BALANCE - MARCH 31, 2026 58,423 $ 62 $ 653,401 $ 1,852,008 3,567 $ ( 139,221 ) $ 3,447 $ 2,369,697
Acquisition of noncontrolling interest shares — — ( 11 ) — — — — ( 11 ) | Net income attributable to noncontrolling interest — — — — — — 76 76 | Noncontrolling interests attributable to subsidiary equity plan — — 82 — — — ( 53 ) 29
Noncontrolling interests attributable to subsidiary equity plan — — 82 — — — ( 53 ) 29 | Net income attributable to the Ensign Group, Inc. — — — 80,277 — — — 80,277 | BALANCE - MARCH 31, 2025 57,547 $ 61 $ 551,867 $ 1,503,442 3,484 $ ( 128,553 ) $ 3,340 $ 1,930,157

Resultat per aktie

RESULTS OF OPERATIONS | Our total revenue for the three months ended March 31, 2026 increased $216.2 million, or 18.4%, compared to the three months ended March 31, 2025, while our diluted GAAP earnings per share grew by 21.9%, from $1.37 to $1.67, compared to the three months ended March 31, 2025. Our Same Facilities occupancy increased by 2.3% to 84.3% during the three months ended March 31, 2026 compared to the same period in 2025, demonstrating our ability to gain additional market share even at our more mature ope | Throughout most of our history, our operating results have been affected by seasonal fluctuations in occupancy and patient acuity, which are most notable when comparing the summer and winter months. For skilled nursing occupancy and skilled mix, we typically experience stronger occupancy and acuity during the first and fourth quarters and softer demand in the second and third quarters. Additionally, our recently acquired facilities typical include operations that historical have had lower occupa
110,200 88,972 | Adjusted Earnings Per Share | 1.85 1.52
The following discussion includes references to Adjusted EBT, Adjusted net income, Adjusted earnings per share, 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 financ
• amortization of patient base intangible assets. | Adjusted Net Income and Adjusted Earnings Per Share
We adjust net income attributable to The Ensign Group, Inc. (adjusted net income) and diluted earnings per share (adjusted earnings per share) when evaluating our performance because we believe these measures provide useful supplemental information to management and investors regarding our ongoing operating performance. We believe that the presentation of adjusted net income and adjusted earnings per share, when considered together with GAAP net income attributable to The Ensign Group, Inc. and
Adjusted earnings per share is calculated by dividing adjusted net income by the weighted‑average diluted shares outstanding for the applicable period. | EBITDA
The table below reconciles net income to adjusted net income and diluted earnings per share to adjusted earnings per share for the periods presented:
Diluted Earnings Per Share $ 1.67 $ 1.37

Kassaflöde

(In thousands) 2026 2025 | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
• 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.
Newly enacted and proposed legislation in the States where our independent subsidiaries are located may affect our operations in terms of individual litigation and the broader regulatory environment. | A bill in the State of California was signed into law which increases the cap of non-economic damages awarded to plaintiffs who are successful in medical malpractice litigation. The cap increases from $0.25 million to $0.35 million beginning on January 1, 2023, then increases over the following 10 years until the cap reaches a maximum of $0.75 million, with further adjustments for inflation. In wrongful death cases, the cap increases from $0.25 million to $0.5 million on January 1, 2023, with in | Another example, California’s adoption of the Skilled Nursing Facility Ownership and Management Reform Act of 2022, discussed in Item 2., under Government Regulation , imposes new requirements for obtaining licenses to operate SNFs. These new requirements may delay or limit the ability to obtain new SNF licenses within that state, whether through acquisition of existing facilities or opening a new facility. This new law's obligations may increase the costs of obtaining licensure, make applicatio
Each lease provides that the landlord may terminate the lease for a variety of reasons, including the default in any payment of rent, taxes or other payment obligations or the breach of any other covenant or agreement in the lease. Termination of a lease could result in a default under our debt agreements and could adversely affect our business, financial position or results of operations. There can be no assurance that we will be able to comply with all of our obligations under the leases in th | 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.
Our Credit Facility will mature on April 8, 2027, and we may not be able to renew, refinance, or replace it on acceptable terms, or at all. Our ability to obtain new financing will depend on market conditions and our financial performance, among other factors. If we are unable to secure replacement financing at maturity, we may be required to use available cash or reduce spending, which could adversely affect our liquidity, financial condition, and results of operations. | We may not generate sufficient cash flow from operations to cover required interest, principal and lease payments. In addition, our outstanding Credit Facility and mortgage loans contain restrictive covenants and require us to maintain or satisfy specified coverage tests on a consolidated basis and on a facility or facilities basis. These restrictions and operating covenants include, among other things, requirements with respect to occupancy, debt service coverage, project yield, net leverage ra | From time to time, the financial performance of one or more of our mortgaged facilities may not comply with the required operating covenants under the terms of the mortgage. Any non-payment, noncompliance or other default under our financing arrangements could, subject to cure provisions, cause the lender to foreclose upon the facility or facilities securing such indebtedness or, in the case of a lease, cause the lessor to terminate the lease, each with a consequent loss of revenue and asset val
Because our term loans, promissory note, bonds, mortgages and lease obligations are fixed expenses and secured by specific assets, and because our revolving loan obligations are secured by virtually all of our assets, if reimbursement rates, patient acuity mix or occupancy levels decline, or if for any reason we are unable to meet our loan or lease obligations, we may not be able to cover our costs and some or all of our assets may become at risk. Our ability to make payments of principal and in | A housing downturn could decrease demand for senior living services.
Seniors often use the proceeds of home sales to fund their admission to senior living facilities. A downturn in the housing markets, including reductions in sales prices caused by increasing mortgage interest rates, economic uncertainty, recession, or a reduction in activity in the market for residential real estate, could adversely affect seniors’ ability to afford our resident fees and entrance fees. Relatedly, a limitation of the amount of home equity that may be exempt from evaluating potent | As we continue to acquire and lease real estate assets, we may not be successful in identifying and consummating these transactions.
Even if Standard Bearer remains qualified as a REIT, it may face other tax liabilities that reduce its cash flow.

Likvida medel

Current assets: | Cash and cash equivalents $ 539,498 $ 503,881 | Accounts receivable—less allowance for doubtful accounts of $ 7,583 and $ 7,805 at March 31, 2026 and December 31, 2025, respectively
Net increase (decrease) in cash and cash equivalents 35,617 ( 181,932 ) | Cash and cash equivalents beginning of period 503,881 464,598
Net increase (decrease) in cash and cash equivalents 35,617 ( 181,932 ) | Cash and cash equivalents beginning of period 503,881 464,598 | Cash and cash equivalents end of period $ 539,498 $ 282,666
Cash and cash equivalents beginning of period 503,881 464,598 | Cash and cash equivalents end of period $ 539,498 $ 282,666
As further discussed in Recent Activities , during the three months ended March 31, 2026, we entered into definitive agreements to acquire real estate assets associated with 19 operations subsequent to March 31, 2026, subject to customary closing conditions, for an aggregate purchase price of approximately $342.4 million. | Our cash and cash equivalents of approximately $539.5 million as of March 31, 2026 consisted of bank deposits and money market funds. In addition, as of March 31, 2026, we held investments of approximately $250.0 million. We believe our investments that were in an unrealized loss position as of March 31, 2026 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so. We may, in the future, seek to raise additional capital to
Net increase (decrease) in cash and cash equivalents $ 35,617 $ (181,932) | Cash and cash equivalents beginning of period 503,881 464,598
Cash and cash equivalents at end of period $ 539,498 $ 282,666
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 March 31, 2026 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 $143.3 million, all of which are at fixed interest rates. | Our cash and cash equivalents as of March 31, 2026 consisted of bank term deposits, money market funds and U.S. Treasury bill related investments. In addition, as of March 31, 2026, we held investments of approximately $250.0 million. We believe our investments that were in an unrealized loss position as of March 31, 2026 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 sen | The above only incorporates those exposures that exist as of March 31, 2026 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.

Nettoskuld

Adjustments to reconcile net income to net cash provided by operating activities: | Depreciation and amortization 28,801 24,188
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ 100,154 $ 72,220
Other investing activities, net 89 ( 9 ) | NET CASH USED IN INVESTING ACTIVITIES | $ ( 71,187 ) $ ( 243,804 )
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | $ 6,650 $ ( 10,348 )
The Company maintains a revolving credit facility between the Company and its independent subsidiaries, including Standard Bearer as co-borrowers, and Truist Securities (Truist) (the Credit Facility) with a revolving line of credit of up to $ 600,000 in aggregate principal amount with a maturity date of 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 the Company's option, equal to either
Borrowings made under the Credit Facility are guaranteed, jointly and severally, by certain of the Company’s wholly-owned subsidiaries, and are secured by a pledge of stock of the Company's material independent subsidiaries as well as a first lien on substantially all of such independent subsidiaries' personal property. The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent subsidiaries to | Mortgage Loans and Promissory Note
NET CASH PROVIDED BY (USED IN): | (In thousands)
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 2.2 | Mortgage Loans and Promissory Note

Eget kapital

Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 3 1 , 202 6 and 202 5 | 3
EQUITY | Ensign Group, Inc. stockholders' equity: | Common stock: $ 0.001 par value; 150,000 shares authorized; 61,990 and 58,423 shares issued and shares outstanding at March 31, 2026, respectively, and 61,652 and 58,085 shares issued and shares outstanding at December 31, 2025, respectively
( 139,221 ) ( 139,198 ) | Total Ensign Group, Inc. stockholders' equity $ 2,366,250 $ 2,231,725 | Non-controlling interest 3,447 3,099
THE ENSIGN GROUP, INC. | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Antal aktier

Ensign Group, Inc. stockholders' equity: | Common stock: $ 0.001 par value; 150,000 shares authorized; 61,990 and 58,423 shares issued and shares outstanding at March 31, 2026, respectively, and 61,652 and 58,085 shares issued and shares outstanding at December 31, 2025, respectively | 62 62
Diluted $ 1.67 $ 1.37 | WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | Basic 57,771 57,099
DENOMINATOR: | Weighted average shares outstanding | 57,771 57,099
DENOMINATOR: | Weighted average common shares outstanding 57,771 57,099 | Plus: incremental shares from assumed conversion (1)
1,796 1,401 | Adjusted weighted average common shares outstanding 59,567 58,500
(1) Options and restricted stock awards outstanding that were anti-dilutive and therefore excluded from the calculation of the weighted average common shares outstanding were 733 and 1,171 for the three months ended March 31, 2026 and 2025, respectivel y.
The Company grants equity awards under the Amended and Restated 2022 Omnibus Incentive Plan (the Amended and Restated Plan), the amendment and restatement of which was approved by the Company’s stockholders during the second quarter of 2025. There are 4,231 shares of common stock available for issuance under the Amended and Restated Plan, and the number of shares available for issuance is reduced by one share for each share subject to an option or stock appreciation right award and by two shares
On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which the Company was authorized to repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months from March 26, 2025. During the first quarter of 2025, the Company repurchased 84 shares of its common stock for $ 10,775 . Subsequent to March 31, 2025, the Company repurchased an additional 73 shares of its common stock for $ 9,225 . This repurchase program expired | Under the repurchase program, the Company is authorized to repurchase its 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 share repurchase program does not obligate the Company to acquire any specific number of shares. Any such repurchases will depend on the Company's business strategy, prevailing market con

Antal anställda

BALANCE - JANUARY 1, 2026 58,085 $ 62 $ 614,724 $ 1,756,137 3,567 $ ( 139,198 ) $ 3,099 $ 2,234,824 | Issuance of common stock to employees and directors resulting from the exercise of stock options 188 — 11,490 — — — — 11,490 | Issuance of restricted stock, net of forfeitures 150 — 13,555 — — — — 13,555
BALANCE - JANUARY 1, 2025 57,438 $ 61 $ 528,052 $ 1,426,762 3,400 $ ( 117,764 ) $ 3,317 $ 1,840,428 | Issuance of common stock to employees and directors resulting from the exercise of stock options 106 — 5,050 — — — — 5,050 | Issuance of restricted stock, net of forfeitures 87 — 8,003 — — — — 8,003
1. DESCRIPTION OF BUSINESS | The Company — The Ensign Group, Inc. (collectively, Ensign or the Company), is a holding company with no direct operating assets, employees or revenue. The Company's independent subsidiaries provide health care services across the post-acute care continuum and engage in the ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare-related properties and ancillary businesses. As of March 31, 2026, the Company's independent subsidiaries operated 378 fac | As of March 31, 2026, the Company's independent subsidiaries operated 254 facilities under long-term lease arrangements and had options to purchase eight of those 254 facilities. The Company's real estate portfolio consists of 160 owned real estate properties, which includes 124 facilities operated and managed by the Company's independent subsidiaries, 36 operations leased to and operated by third-party operators and the Service Center (defined below) location. Of those 36 third-party operations
To support its growth efforts and operational needs, the Company maintains a centralized support structure through its Service Center and captive insurance subsidiary, which provide essential services and risk management to its wholly-owned independent subsidiaries. Certain of the Company’s wholly-owned independent subsidiaries, collectively referred to as the Service Center, provide specific accounting, payroll, human resources, compliance, information technology, legal, risk management and oth | Each of the Company's wholly-owned independent subsidiaries has its own management, employees and assets. References herein to the consolidated “Company” and “its” assets and activities in this Quarterly Report are not meant to imply, nor should it be construed as meaning that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Ensign Group, Inc. | Other Information — The accompanying condensed consolidated financial statements as of March 31, 2026 and for the three months ended March 31, 2026 and 2025 (collectively, the Interim Financial Statements) are unaudited. Certain information and note disclosures normally included in the annual consolidated financial statements have been condensed or omitted, as permitted under applicable rules and regulations. Readers of the Interim Financial Statements should refer to the Company’s audited conso
The Company's financial assets also include the contracts insuring the lives of certain employees who are eligible to participate in non-qualified deferred compensation plans that are held in a rabbi trust. The cash surrender value of these contracts is based on funds that shadow the investment allocations specified by participants in the deferred compensation plan and are held at fair value. As of March 31, 2026 and December 31, 2025, the fair value of the investment funds was $ 81,895 and $ 74 | Additionally, the Company has other investments held at historical cost basis, which are not material, for which the fair value is derived using Level 3 inputs.
Intercompany management agreement | Standard Bearer has no employees. The Service Center provides personnel and services to Standard Bearer pursuant to the management agreement between Standard Bearer and the Service Center. The management agreement provides for a base management fee that is equal to 5.0 % of total rental revenue and an incentive management fee that is equal to 5.0 % of funds from operations (FFO) and is capped at 1.0 % of total rental revenue, for a total of 6.0 %. Management fee generated between Standard Bearer
Equity Instrument Denominated in the Shares of a Subsidiary | As part of the formation of Standard Bearer in 2022, the Company established the Standard Bearer Healthcare REIT, Inc. 2022 Omnibus Incentive Plan (Standard Bearer Equity Plan). The Company may grant stock options and restricted stock awards under the Standard Bearer Equity Plan to employees and management of Ensign's independent subsidiaries. These awards generally vest over a period of five years or upon the occurrence of certain prescribed events. The value of the stock options and restricted | The grant-date fair value of the awards is recognized as compensation expense over the relevant vesting periods, with a corresponding adjustment to noncontrolling interests. The grant value was determined based on an independent valuation of the subsidiary shares. For the three months ended March 31, 2026 and 2025, share-based compensation expense under the Standard Bearer Equity Plan was not material.
Stock-based compensation expense consists of stock-based payment awards made to employees and directors, including employee stock options and restricted stock awards, based on estimated fair values. As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three months ended March 31, 2026 and 2025 was based on awards expected to vest, it has been reduced for estimated forfeitures. The Company estimates forfeitures at the time of grant an

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2026 .
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                      to                      .

Commission file number: 001-33757
_____________________________

THE ENSIGN GROUP, INC .
(Exact Name of Registrant as Specified in Its Charter)

Delaware 33-0861263
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

29222 Rancho Viejo Road, Suite 127
San Juan Capistrano , CA 92675
(Address of Principal Executive Offices and Zip Code)

( 949 )  487-9500
(Registrant’s Telephone Number, Including Area Code)
_____________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share ENSG NASDAQ Global Select Market

Indicate by check mark:

whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ☐ No
whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ☐ No
whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer þ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Yes ☐ No

whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No

As of April 27, 2026, 58,445,400 shares of the registrant’s common stock, $0.001 par value, were outstanding.

Table of Contents

THE ENSIGN GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2026
TABLE OF CONTENTS

PART I. Financial Information
Pg.
Item 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of March 3 1 , 202 6 and December 31, 202 5
1

Condensed Consolidated Statements of Income for the three months ended Mar ch 3 1 , 202 6 and 202 5
2

Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 3 1 , 202 6 and 202 5
3

Condensed Consolidated Statements of Cash Flows for the three months ended Marc h 3 1 , 202 6 and 202 5
4

Notes to the Condensed Consolidated Financial Statements
6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
24

Item 3. Quantitative and Qualitative Disclosures About Market Risk
61

Item 4. Controls and Procedures
61

P ART II. Other Information

Item 1. Legal Proceedings
62

Item 1A. Risk Factors
65

Item 5. Other Information
96

Item 6. Exhibits
97

Signatures

Table of Contents

PART I.

Item 1.     FINANCIAL STATEMENTS

THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)

March 31, 2026 December 31, 2025

ASSETS    
Current assets:    
Cash and cash equivalents $ 539,498   $ 503,881  
Accounts receivable—less allowance for doubtful accounts of $ 7,583 and $ 7,805 at March 31, 2026 and December 31, 2025, respectively
663,247   636,985  

Investments—current 55,677   68,506  

Prepaid expenses and other current assets 61,678   62,932  

Total current assets $ 1,320,100   $ 1,272,304  
Property and equipment, net 1,720,225   1,696,863  
Right-of-use assets 2,137,308   2,097,862  
Insurance subsidiary deposits and investments 194,309   166,841  

Deferred tax assets 83,169   83,138  
Restricted and other assets 52,347   41,600  
Intangible assets, net 6,322   6,381  
Goodwill 97,981   97,981  

TOTAL ASSETS $ 5,611,761   $ 5,462,970  
LIABILITIES AND EQUITY    
Current liabilities:    
Accounts payable $ 116,132   $ 97,327  

Accrued wages and related liabilities 313,517   422,326  
Lease liabilities—current 116,500   114,816  
Accrued self-insurance liabilities—current 94,868   81,623  

Other accrued liabilities 202,766   174,027  
Current maturities of long-term debt 4,263   4,227  

Total current liabilities $ 848,046   $ 894,346  

Long-term lease liabilities—less current portion 1,987,386   1,949,213  
Accrued self-insurance liabilities—less current portion 183,860   164,792  
Other long-term liabilities 86,281   82,266  
Long-term debt—less current maturities 136,491   137,529  

TOTAL LIABILITIES $ 3,242,064   $ 3,228,146  

Commitments and contingencies (Notes 13 and 18)

EQUITY    
Ensign Group, Inc. stockholders' equity:
Common stock: $ 0.001 par value; 150,000 shares authorized; 61,990 and 58,423 shares issued and shares outstanding at March 31, 2026, respectively, and 61,652 and 58,085 shares issued and shares outstanding at December 31, 2025, respectively
62   62  
Additional paid-in capital 653,401   614,724  
Retained earnings 1,852,008   1,756,137  
Treasury stock, at cost, 3,567 shares at March 31, 2026 and December 31, 2025
( 139,221 ) ( 139,198 )
Total Ensign Group, Inc. stockholders' equity $ 2,366,250   $ 2,231,725  
Non-controlling interest 3,447   3,099  
Total equity $ 2,369,697   $ 2,234,824  
TOTAL LIABILITIES AND EQUITY $ 5,611,761   $ 5,462,970  

See accompanying notes to the condensed consolidated financial statements.
1

Table of Contents

THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,
  2026 2025

(In thousands, except per share data)
REVENUE
Service revenue $ 1,382,303   $ 1,167,040  
Rental revenue 6,893   6,001  
TOTAL REVENUE $ 1,389,196   $ 1,173,041  

Expense:
Cost of services 1,095,826   927,849  

Rent—cost of services 65,506   57,076  
General and administrative expense 74,210   62,555  
Depreciation and amortization 28,801   24,188  
TOTAL EXPENSES $ 1,264,343   $ 1,071,668  
Income from operations 124,853   101,373  
Other income (expense):
Interest expense ( 1,932 ) ( 2,037 )
Interest income 6,536   6,883  
Other (expense) income ( 885 ) 361  
OTHER INCOME, NET
$ 3,719   $ 5,207  
Income before provision for income taxes 128,572   106,580  
Provision for income taxes 28,816   26,227  

NET INCOME $ 99,756   $ 80,353  
Less:

Net income attributable to noncontrolling interests 88   76  
NET INCOME ATTRIBUTABLE TO THE ENSIGN GROUP, INC.
$ 99,668   $ 80,277  

NET INCOME PER SHARE ATTRIBUTABLE TO THE ENSIGN GROUP INC.

Basic $ 1.73   $ 1.41  

Diluted $ 1.67   $ 1.37  
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 57,771   57,099  
Diluted 59,567   58,500  

See accompanying notes to the condensed consolidated financial statements.
2

Table of Contents

THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

  Common Stock   Additional Paid-In Capital   Retained Earnings   Treasury Stock Non-Controlling Interest
(In thousands) Shares   Amount       Shares   Amount Total
BALANCE - JANUARY 1, 2026 58,085   $ 62   $ 614,724   $ 1,756,137   3,567   $ ( 139,198 ) $ 3,099   $ 2,234,824  
Issuance of common stock to employees and directors resulting from the exercise of stock options 188   —  11,490   —  —  —  —  11,490  
Issuance of restricted stock, net of forfeitures 150   —  13,555   —  —  —  —  13,555  
Shares of common stock used to satisfy tax withholding obligations —  —  —  —  —  ( 23 ) —  ( 23 )
Dividends declared ($ 0.0650 per share)
—  —  —  ( 3,797 ) —  —  —  ( 3,797 )
Employee stock award compensation —  —  13,693   —  —  —  —  13,693  

Net income attributable to noncontrolling interest —  —  —  —  —  —  88   88  
Noncontrolling interests attributable to subsidiary equity plan —  —  ( 61 ) —  —  —  260   199  
Net income attributable to the Ensign Group, Inc. —  —  —  99,668   —  —  —  99,668  
BALANCE - MARCH 31, 2026 58,423   $ 62   $ 653,401   $ 1,852,008   3,567   $ ( 139,221 ) $ 3,447   $ 2,369,697  

  Common Stock   Additional Paid-In Capital   Retained Earnings   Treasury Stock Non-Controlling Interest
(In thousands) Shares   Amount       Shares   Amount Total
BALANCE - JANUARY 1, 2025 57,438   $ 61   $ 528,052   $ 1,426,762   3,400   $ ( 117,764 ) $ 3,317   $ 1,840,428  
Issuance of common stock to employees and directors resulting from the exercise of stock options 106   —  5,050   —  —  —  —  5,050  
Issuance of restricted stock, net of forfeitures 87   —  8,003   —  —  —  —  8,003  
Shares of common stock used to satisfy tax withholding obligations —  —  —  —  —  ( 14 ) —  ( 14 )
Dividends declared ($ 0.0625 per share)
—  —  —  ( 3,597 ) —  —  —  ( 3,597 )
Employee stock award compensation —  —  10,691   —  —  —  —  10,691  
Repurchase of common stock (Note 19)
( 84 ) —  —  —  84   ( 10,775 ) —  ( 10,775 )
Acquisition of noncontrolling interest shares —  —  ( 11 ) —  —  —  —  ( 11 )
Net income attributable to noncontrolling interest —  —  —  —  —  —  76   76  
Noncontrolling interests attributable to subsidiary equity plan —  —  82   —  —  —  ( 53 ) 29  
Net income attributable to the Ensign Group, Inc. —  —  —  80,277   —  —  —  80,277  
BALANCE - MARCH 31, 2025 57,547   $ 61   $ 551,867   $ 1,503,442   3,484   $ ( 128,553 ) $ 3,340   $ 1,930,157  

See accompanying notes to the condensed consolidated financial statements.
3

Table of Contents

THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,
(In thousands) 2026 2025
Cash flows from operating activities:    
Net income $ 99,756   $ 80,353  

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 28,801   24,188  

Amortization of deferred financing fees 264   266  

Stock-based compensation 13,895   10,724  

Insurance proceeds and (gain) loss on long-lived assets, net 1,915   420  

Other operating activities, net 613   646  
Change in operating assets and liabilities  
Accounts receivable ( 24,009 ) ( 14,589 )
Prepaid income taxes 1,878   13,057  
Prepaid expenses and other assets ( 986 ) ( 9,360 )

Cash surrender value of life insurance policy premiums ( 7,490 ) ( 7,489 )
Deferred compensation liability 6,926   7,441  
Operating lease obligations ( 183 ) ( 102 )
Accounts payable 18,705   ( 3,521 )
Accrued wages and related liabilities ( 97,663 ) ( 60,021 )

Other accrued liabilities 27,283   21,497  
Accrued self-insurance liabilities 30,449   8,710  

NET CASH PROVIDED BY OPERATING ACTIVITIES
$ 100,154   $ 72,220  

Cash flows from investing activities:    
Purchase of property and equipment ( 35,473 ) ( 42,926 )
Cash payments for acquisitions ( 28,737 ) ( 194,241 )

Cash proceeds from insurance recoveries and sale of assets 83   1,494  

Purchases of investments ( 36,866 ) ( 25,984 )
Maturities of investments 29,717   17,862  

Other investing activities, net 89   ( 9 )
NET CASH USED IN INVESTING ACTIVITIES
$ ( 71,187 ) $ ( 243,804 )

Cash flows from financing activities:    

Payments on debt ( 1,042 ) ( 1,009 )

Issuance of common stock upon exercise of options 11,490   5,050  
Repurchase of shares of common stock to satisfy tax withholding obligations ( 23 ) ( 14 )

Repurchase of shares of common stock (Note 19)
—   ( 10,775 )
Dividends paid ( 3,775 ) ( 3,589 )

Other financing activities —   ( 11 )

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
$ 6,650   $ ( 10,348 )

Net increase (decrease) in cash and cash equivalents 35,617   ( 181,932 )
Cash and cash equivalents beginning of period 503,881   464,598  
Cash and cash equivalents end of period $ 539,498   $ 282,666  

4

Table of Contents

Three Months Ended March 31,
(In thousands) 2026 2025
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION    

Cash paid during the period for:    
Interest $ 1,664   $ 1,769  
Income taxes 425   —  
Lease liabilities 66,078   59,165  
Non-cash financing and investing activity  
Accrued capital expenditures $ 9,970   $ 7,800  
Accrued dividends declared 3,797   3,597  

Right-of-use assets obtained in exchange for new and modified operating lease obligations 68,296   57,961  

See accompanying notes to the condensed consolidated financial statements.
5

Table of Contents

THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars, shares and options in thousands, except per share data)

1. DESCRIPTION OF BUSINESS
The Company  — The Ensign Group, Inc. (collectively, Ensign or the Company), is a holding company with no direct operating assets, employees or revenue. The Company's independent subsidiaries provide health care services across the post-acute care continuum and engage in the ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare-related properties and ancillary businesses. As of March 31, 2026, the Company's independent subsidiaries operated 378 facilities and other ancillary operations located in 17 states. The Company's independent subsidiaries have a collective capacity of approximately 38,500 operational skilled nursing beds and 3,400 senior living units.
As of March 31, 2026, the Company's independent subsidiaries operated 254 facilities under long-term lease arrangements and had options to purchase eight of those 254 facilities. The Company's real estate portfolio consists of 160 owned real estate properties, which includes 124 facilities operated and managed by the Company's independent subsidiaries, 36 operations leased to and operated by third-party operators and the Service Center (defined below) location. Of those 36 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.
During the three months ended March 31, 2026, the Company expanded its presence with the addition of five stand-alone skilled nursing operations in three states . These new operations added a total of 582 operational skilled nursing beds to be operated by the Company's independent subsidiaries. Additionally, the Company entered into definitive agreements to acquire 15 stand-alone skilled nursing operations and two campus operations in Texas subsequent to March 31, 2026, subject to customary closing conditions. These new operations will add 2,080 operational skilled nursing beds and 155 senior living units to be operated by the Company's independent subsidiaries.
The Company's captive real estate investment trust (REIT), Standard Bearer Healthcare REIT, Inc. (Standard Bearer), owns and manages its real estate business. The REIT structure provides the Company with an efficient vehicle for future acquisitions of properties that could be operated by Ensign's independent subsidiaries or other third parties. Standard Bearer has elected to be taxed as a REIT for U.S. federal income tax purposes. Refer to Note 6, Standard Bearer for additional information on Standard Bearer.
To support its growth efforts and operational needs, the Company maintains a centralized support structure through its Service Center and captive insurance subsidiary, which provide essential services and risk management to its wholly-owned independent subsidiaries. Certain of the Company’s wholly-owned independent subsidiaries, collectively referred to as the Service Center, provide specific accounting, payroll, human resources, compliance, information technology, legal, risk management and other centralized services to the other independent subsidiaries. The Company also has a wholly-owned captive insurance subsidiary that provides some claims-made coverage to the Company’s independent subsidiaries for general and professional liabilities, as well as coverage for certain workers’ compensation insurance liabilities.
Each of the Company's wholly-owned independent subsidiaries has its own management, employees and assets. References herein to the consolidated “Company” and “its” assets and activities in this Quarterly Report are not meant to imply, nor should it be construed as meaning that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Ensign Group, Inc.
Other Information — The accompanying condensed consolidated financial statements as of March 31, 2026 and for the three months ended March 31, 2026 and 2025 (collectively, the Interim Financial Statements) are unaudited. Certain information and note disclosures normally included in the annual consolidated financial statements have been condensed or omitted, as permitted under applicable rules and regulations. Readers of the Interim Financial Statements should refer to the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2025 which are included in the Company’s Annual Report on Form 10-K, File No. 001-33757 (the Annual Report) filed with the Securities and Exchange Commission (SEC). Management believes that the Interim Financial Statements reflect all adjustments which are of a normal and recurring nature necessary to present fairly the Company’s financial position and results of operations in all material respects. The results of operations presented in the Interim Financial Statements are not necessarily representative of operations for the entire year.

6

Table of Contents     
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation — The accompanying Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The Company is the sole member or stockholder of various consolidated limited liability companies and corporations established to operate various acquired skilled nursing operations, senior living operations and related ancillary services. All intercompany transactions and balances have been eliminated in consolidation. The Company presents noncontrolling interests within the equity section of its condensed consolidated balance sheets and the amount of consolidated net income that is attributable to The Ensign Group, Inc. and the noncontrolling interests in its condensed consolidated statements of income. The Interim Financial Statements include the accounts of all independent subsidiaries controlled by the Company through its ownership of a majority voting interest.
The preparation of the Interim Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Interim Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates in the Company’s Interim Financial Statements relate to revenue, acquired property and equipment, goodwill, right-of-use assets, impairment of long-lived assets, lease liabilities, general and professional liabilities, workers' compensation and healthcare claims included in accrued self-insurance liabilities and income taxes. Actual results could differ from those estimates. Certain amounts in the prior period statements of cash flows have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on previously reported net income.
Recent Accounting Pronouncements — Except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws and a limited number of grandfathered standards, the FASB ASC is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. For any new pronouncements announced, the Company considers whether the new pronouncements could alter previous generally accepted accounting principles and determines whether any new or modified principles will have a material impact on the Company's reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company's financial management and certain standards are under consideration.
Recently Issued Accounting Pronouncements Not Yet Adopted — In November 2024, the FASB issued ASU 2024-03 " Disaggregation of Income Statement Expenses, " which requires the Company to disaggregate key expense categories such as employee compensation, depreciation and intangible asset amortization within its financial statements. ASU 2024-03 is effective for annuals periods beginning with the Company's fiscal year 2027, and interim periods within the Company's fiscal year 2028, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its Notes to the Consolidated Financial Statements.
In September 2025, the FASB issued ASU 2025-06 " Targeted Improvements to the Accounting for Internal-Use Software ," which amends the accounting for and disclosure of software costs under the existing standards. The amendments clarify the requirement for capitalizing software costs. ASU 2025-06 is effective beginning with the Company's fiscal year 2028 for both interim and annual periods, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.

3. REVENUE AND ACCOUNTS RECEIVABLE

The Company's service revenue is derived primarily from providing healthcare services to its patients. Revenue is recognized when services are provided to patients at the amount that reflects the consideration that the Company expects to be entitled from patients and third-party payors, including Medicaid, Medicare and insurers (private and Medicare replacement plans), in exchange for providing patient care.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with its patients by payors. The Company has determined that disaggregating revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

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Table of Contents     
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue by Payor

The Company’s revenue is derived primarily from providing healthcare services to patients and is recognized on the date services are provided at amounts billable to individual patients, adjusted for estimates for variable consideration. For patients under reimbursement arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts or rates, adjusted for estimates for variable consideration, on a per patient, daily basis or as services are performed.

Revenue from the Medicare and Medicaid programs accounted for 69.1 % and 69.5 % of all service revenue for the three months ended March 31, 2026 and 2025, respectively. Settlements with Medicare, Medicaid and managed care payors for retroactive adjustments due to audits and reviews are considered variable consideration and are included in the determination of the estimated transaction price. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity. Consistent with healthcare industry practices, any changes to these revenue estimates are recorded in the period the change or adjustment becomes known based on the final settlement. The Company recorded adjustments to revenue which were not material to the Company's revenue for the three months ended March 31, 2026 and 2025.

Service revenue for the three months ended March 31, 2026 and 2025 is summarized in the following tables:

  Three Months Ended March 31,
2026 2025
Revenue % of Revenue Revenue % of Revenue
Medicaid (1)
$ 543,450   39.3   % $ 453,840   38.9   %
Medicare 335,829   24.3   287,751   24.7  
Medicaid-skilled 75,238   5.5   69,551   5.9  
Total Medicaid and Medicare $ 954,517   69.1   % $ 811,142   69.5   %
Managed care 260,851   18.9   227,217   19.5  
Private and other (2)
166,935   12.0   128,681   11.0  
SERVICE REVENUE $ 1,382,303   100.0   % $ 1,167,040   100.0   %
(1) Medicaid payor includes revenue for senior living operations.

(2) Private and other includes revenue for skilled services (private, Veteran Affairs and hospice payors), senior living and ancillary operations.

In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties was $ 6,893 and $ 6,001 , respectively, for the three months ended March 31, 2026 and 2025.
Balance Sheet Impact
Included in the Company’s condensed consolidated balance sheets are contract balances, comprised of billed accounts receivable and unbilled receivables, which are the result of the timing of revenue recognition, billings and cash collections, as well as contract liabilities, which primarily represent payments the Company receives in advance of services provided. The Company had no material contract liabilities or contract assets as of March 31, 2026 and December 31, 2025, or activity during the three months ended March 31, 2026 and 2025.

Accounts receivable consist primarily of amounts due from Medicare and Medicaid programs, other government programs, managed care health plans and private payor sources, net of estimates for variable consideration and doubtful accounts. Accounts receivable as of March 31, 2026 and December 31, 2025, is summarized in the following table:

March 31, 2026 December 31, 2025

Medicaid $ 291,960   $ 296,649  
Managed care 180,438   163,463  
Medicare 115,292   102,693  
Private and other payors 83,140   81,985  
  $ 670,830   $ 644,790  
Less: allowance for doubtful accounts ( 7,583 ) ( 7,805 )
ACCOUNTS RECEIVABLE, NET $ 663,247   $ 636,985  

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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. COMPUTATION OF NET INCOME PER COMMON SHARE

Basic net income per share is computed by dividing income from operations attributable to stockholders of The Ensign Group, Inc. by the weighted average number of outstanding common shares for the period. The computation of diluted net income per share is similar to the computation of basic net income per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

A reconciliation of the numerator and denominator used in the calculation of basic net income per common share follows:

Three Months Ended March 31,
  2026 2025
NUMERATOR:    
Net income $ 99,756   $ 80,353  
Less: net income attributable to noncontrolling interests 88   76  
Net income attributable to The Ensign Group, Inc. $ 99,668   $ 80,277  

DENOMINATOR:  
Weighted average shares outstanding
57,771   57,099  

Basic net income per common share: $ 1.73   $ 1.41  

A reconciliation of the numerator and denominator used in the calculation of diluted net income per common share follows:

Three Months Ended March 31,
  2026 2025
NUMERATOR:    
Net income $ 99,756   $ 80,353  
Less: net income attributable to noncontrolling interests 88   76  
Net income attributable to The Ensign Group, Inc. $ 99,668   $ 80,277  

DENOMINATOR:    
Weighted average common shares outstanding 57,771   57,099  
Plus: incremental shares from assumed conversion (1)
1,796   1,401  
Adjusted weighted average common shares outstanding 59,567   58,500  

Diluted net income per common share: $ 1.67   $ 1.37  

(1) Options and restricted stock awards outstanding that were anti-dilutive and therefore excluded from the calculation of the weighted average common shares outstanding were 733 and 1,171 for the three months ended March 31, 2026 and 2025, respectivel y.

5. FAIR VALUE MEASUREMENTS

The Company's financial assets include held-to-maturity investments carried at amortized cost basis of $ 156,945 and $ 150,119 , of which $ 100,578 and $ 81,816 are designated to support insurance subsidiary liabilities, as of March 31, 2026 and December 31, 2025, respectively. As of March 31, 2026 and December 31, 2025, the amortized cost basis of these financial assets are considered to approximate fair value and are derived using Level 2 inputs. The Company believes its amortized cost basis investments that were in an unrealized loss position as of March 31, 2026 and December 31, 2025 do not require an allowance for expected credit losses, nor has any event occurred through the filing date of this report that would indicate differently.

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Table of Contents     
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company's financial assets also include the contracts insuring the lives of certain employees who are eligible to participate in non-qualified deferred compensation plans that are held in a rabbi trust. The cash surrender value of these contracts is based on funds that shadow the investment allocations specified by participants in the deferred compensation plan and are held at fair value. As of March 31, 2026 and December 31, 2025, the fair value of the investment funds was $ 81,895 and $ 74,405 , respectively, which are derived using Level 2 inputs. Refer to Note 16, Defined Contribution Plans for more information.
Additionally, the Company has other investments held at historical cost basis, which are not material, for which the fair value is derived using Level 3 inputs.

6. STANDARD BEARER
Standard Bearer's real estate portfolio consists of 154 of the Company's 160 owned real estate properties, of which 120 are operated and managed by the Company's independent subsidiaries and 35 are leased to and operated by third-party operators. Of those 35 operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.
During the three months ended March 31, 2026, Standard Bearer added $ 17,468 of real estate assets associated with two stand-alone skilled nursing operations, both of which are operated by the Company's independent subsidiaries . Additionally , during the three months ended March 31, 2026, the operating responsibility for two stand-alone skilled nursing operations previously acquired by Standard Bearer was transitioned from third-party operators to the Company's independent subsidiaries. R efer to Note 8, Property and Equipment - Net, for additional information on real estate acquisitions subsequent to March 31, 2026.
During the three months ended March 31, 2025, Standard Bearer added $ 147,796 of real estate assets associated with eight stand-alone skilled nursing operations, one stand-alone senior living operation and two campus operations. Four of these additions were related to the exercise of purchase options under an existing lease arrangement from CareTrust REIT, Inc. (CareTrust). All these additions are operated by the Company's independent subsidiaries.
As part of the formation of Standard Bearer, certain of the Company's independent subsidiaries , Standard Bearer and Standard Bearer's independent real estate subsidiaries entered into several agreements that include leasing, management services and debt arrangements between the operations . All intercompany transactions have been eliminated in consolidation. Refer to Note 7, Business Segments , for additional information related to these intercompany eliminations as well as Standard Bearer as a reportable segment.
Intercompany master lease agreements
Certain of the Company's independent subsidiaries and 120 Standard Bearer independent real estate subsidiaries have entered into seven triple-net master lease agreements (collectively, the Standard Bearer Master Leases). The lease periods range from 15 to 19 years with three five-year renewal options beyond the initial term, on the same terms and conditions. The rent structure under the Standard Bearer Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero ) or (2) 2.5 %. In addition to rent, the independent subsidiaries are required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties; (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties. Intercompany rental revenue generated from Ensign-affiliated operations for the three months ended March 31, 2026 and 2025 was $ 30,832 and $ 23,904 , respectively, which has been eliminated in consolidation.
Intercompany management agreement
Standard Bearer has no employees. The Service Center provides personnel and services to Standard Bearer pursuant to the management agreement between Standard Bearer and the Service Center. The management agreement provides for a base management fee that is equal to 5.0 % of total rental revenue and an incentive management fee that is equal to 5.0 % of funds from operations (FFO) and is capped at 1.0 % of total rental revenue, for a total of 6.0 %. Management fee generated between Standard Bearer and the Service Center for the three months ended March 31, 2026 and 2025 was $ 2,163 and $ 1,692 , respectively, which has been eliminated in consolidation.

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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Intercompany debt arrangements

Standard Bearer obtains its funding through various sources including operating cash flows, access to debt arrangements and intercompany loans. The intercompany debt arrangements include mortgage loans and a credit facility to fund acquisitions and working capital needs. The interest rate under the credit facility is 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.

In addition, as the Department of Housing and Urban Development (HUD) mortgage loans and promissory note are entered into by real estate subsidiaries of Standard Bearer, the interest expense incurred from these debts are included in Standard Bearer's segment income. Refer to Note 13, Debt , for additional information related to these debts.
Equity Instrument Denominated in the Shares of a Subsidiary
As part of the formation of Standard Bearer in 2022, the Company established the Standard Bearer Healthcare REIT, Inc. 2022 Omnibus Incentive Plan (Standard Bearer Equity Plan). The Company may grant stock options and restricted stock awards under the Standard Bearer Equity Plan to employees and management of Ensign's independent subsidiaries. These awards generally vest over a period of five years or upon the occurrence of certain prescribed events. The value of the stock options and restricted stock awards is tied to the value of the common stock of Standard Bearer, which is determined based on an independent valuation of Standard Bearer. The Company can also call the awards, generally upon employee termination. During the three months ended March 31, 2026 and 2025, the Company did not grant any stock options or restricted shares under the Standard Bearer Equity Plan. During the three months ended March 31, 2026 and 2025, there were no restricted stock awards vested for the periods.
The grant-date fair value of the awards is recognized as compensation expense over the relevant vesting periods, with a corresponding adjustment to noncontrolling interests. The grant value was determined based on an independent valuation of the subsidiary shares. For the three months ended March 31, 2026 and 2025, share-based compensation expense under the Standard Bearer Equity Plan was not material.

7. BUSINESS SEGMENTS

The Company has two reportable segments: (1) skilled services, which includes the operation of skilled nursing facilities and rehabilitation therapy services and (2) Standard Bearer, which is comprised of selected real estate properties owned by Standard Bearer and leased to skilled nursing and senior living operators.
As of March 31, 2026, the skilled services segment includes 331 skilled nursing and 31 campus operations that provide both skilled nursing and rehabilitative care services and senior living services. The Company's Standard Bearer segment consists of 154 owned real estate properties.
The Company also reports an “All Other” category that includes results from its senior living operations, which includes 16 stand-alone senior living operations and the senior living operations at 31 campus operations that provide both skilled nursing and rehabilitative care services and senior living services. In addition, the "All Other" category includes mobile diagnostics, medical transportation, other real estate, other ancillary operations and the Service Center. Services included in the “All Other” category are insignificant individually and therefore do not constitute a reportable segment.
The Company’s reportable segments are significant operating segments that offer differentiated services. The segment structure reflects the Company's current operational and financial management and provides the best structure to maximize the quality of care and investment strategy provided, while maintaining financial discipline.
Segment income is defined as income before provision for income taxes, excluding gain or loss from sale of real estate, real estate insurance recoveries and impairment of long-lived assets. The Company's chief operating decision maker or CODM, who is the Chief Executive Officer, reviews segment income for each operating segment to evaluate performance and allocate capital resources. The CODM uses segment income to analyze actual results as part of operational planning and to decide whether to reinvest profits into the segments or into other parts of the Company, such as through acquisitions, to pay dividends or to recommend a stock repurchase program. The Company's CODM does not review assets by segment in his resource allocation and therefore assets by segment are not disclosed below.
Intercompany revenue is eliminated in consolidation, along with corresponding intercompany expenses. Included in segment income for Standard Bearer is expense for intercompany services provided by the Service Center as described in Note 6, Standard Bearer , as it is part of the CODM financial information.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following tables set forth financial information for the segments:

  Three Months Ended March 31, 2026
  Skilled Services Standard Bearer Total
Service revenue (1)
$ 1,330,835   $ —   $ 1,330,835  
Rental revenue —   36,102   36,102  
Segment revenue $ 1,330,835   $ 36,102   $ 1,366,937  

Reconciliation of revenue:

All other revenue (2)
62,256  
Elimination of intercompany revenue (3)
( 39,997 )
TOTAL CONSOLIDATED REVENUE
$ 1,389,196  
Less:

Other segment items (4)
1,141,508   3,122  
Depreciation and amortization 15,310   10,783  
Interest expense (5)
—   11,388  
Segment income
$ 174,017   $ 10,809   $ 184,826  

Reconciliation of profit or loss:

All other not included in segment income
( 56,254 )

INCOME BEFORE PROVISION FOR INCOME TAXES $ 128,572  

(1) Skilled services service revenue does not include intercompany service revenue generated by ancillary operations provided to the Company's independent subsidiaries and management service revenue generated by the Service Center with Standard Bearer. Intercompany service revenue is eliminated in "Elimination of intercompany revenue".
(2) All other revenue includes $ 59,061 of service revenue and $ 3,195 of rental revenue for the three months ended March 31, 2026, both of which include intercompany revenue that is eliminated in "Elimination of intercompany revenue".
(3) Elimination of intercompany revenue includes the elimination of intercompany rental revenue of $ 32,404 and intercompany service revenue of $ 7,593 for the three months ended March 31, 2026.
(4) Other segment items include cost of services of $ 1,052,724 and rent expense of $ 88,784 for the skilled services segment, and cost of services of $ 625 , rent expense of $ 265 and general and administrative expenses of $ 2,232 for the Standard Bearer segment. Additionally, there are intercompany expenses of $ 39,997 during the three months ended March 31, 2026, which are eliminated in consolidation.
(5) Included in interest expense in Standard Bearer is interest from intercompany debt arrangements between Standard Bearer and The Ensign Group, Inc. of $ 9,767 during the three months ended March 31, 2026, which is eliminated in consolidation.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

  Three Months Ended March 31, 2025
  Skilled Services Standard Bearer Total
Service revenue (1)
$ 1,123,554   $ —   $ 1,123,554  
Rental revenue —   28,401   28,401  
Segment revenue $ 1,123,554   $ 28,401   $ 1,151,955  

Reconciliation of revenue:

All other revenue (2)
52,426  
Elimination of intercompany revenue (3)
( 31,340 )
TOTAL CONSOLIDATED REVENUE
$ 1,173,041  
Less:

Other segment items (4)
966,410   2,606  
Depreciation and amortization 13,213   8,476  
Interest expense (5)
—   8,736  
Segment income
$ 143,931   $ 8,583   $ 152,514  

Reconciliation of profit or loss:

All other not included in segment income
( 45,934 )

INCOME BEFORE PROVISION FOR INCOME TAXES $ 106,580  

(1) Skilled services service revenue does not include intercompany service revenue generated by ancillary operations provided to the Company's independent subsidiaries and management service revenue generated by the Service Center with Standard Bearer. Intercompany service revenue is eliminated in "Elimination of intercompany revenue".
(2) All Other revenue includes $ 49,427 of service revenue and $ 2,999 of rental revenue for the three months ended March 31, 2025, both of which include intercompany revenue that is eliminated in "Elimination of intercompany revenue".
(3) Elimination of intercompany revenue includes the elimination of intercompany rental revenue of $ 25,399 and intercompany service revenue of $ 5,941 for the three months ended March 31, 2025.
(4) Other segment items include cost of services of $ 891,855 and rent expense of $ 74,555 for the skilled services segment, and cost of services of $ 598 , rent expense of $ 257 and general and administrative expenses of $ 1,751 for the Standard Bearer segment. Additionally, there are intercompany expenses of $ 31,340 during the three months ended March 31, 2025, which is eliminated in consolidation.
(5) Included in interest expense in Standard Bearer is interest from intercompany debt arrangements between Standard Bearer and The Ensign Group, Inc. of $ 7,040 during the three months ended March 31, 2025, which is eliminated in consolidation.

Service revenue by major payor source were as follows:

  Three Months Ended March 31, 2026
  Skilled Services All Other (3)
Total Service Revenue Revenue %
Medicaid (1)
$ 529,333   $ 14,117   $ 543,450   39.3   %
Medicare 335,829   —   335,829   24.3  
Medicaid-skilled 75,238   —   75,238   5.5  
Subtotal $ 940,400   $ 14,117   $ 954,517   69.1   %
Managed care 260,851   —   260,851   18.9  
Private and other (2)
129,584   37,351   166,935   12.0  
TOTAL SERVICE REVENUE $ 1,330,835   $ 51,468   $ 1,382,303   100.0   %

(1) Medicaid payor includes revenue generated from senior living operations and revenue related to state relief funding.
(2) Private and other includes revenue for skilled services (private, Veteran Affairs and hospice payors), senior living and ancillary operations.
(3) All Other incorporates intercompany eliminations.

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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

  Three Months Ended March 31, 2025
  Skilled Services All Other (3)
Total Service Revenue Revenue %
Medicaid (1)
$ 443,411   $ 10,429   $ 453,840   38.9   %
Medicare 287,751   —   287,751   24.7  
Medicaid-skilled 69,551   —   69,551   5.9  
Subtotal $ 800,713   $ 10,429   $ 811,142   69.5   %
Managed care 227,217   —   227,217   19.5  
Private and other (2)
95,624   33,057   128,681   11.0  
TOTAL SERVICE REVENUE $ 1,123,554   $ 43,486   $ 1,167,040   100.0   %

(1) Medicaid payor includes revenue generated from senior living operations and revenue related to state relief funding.
(2) Private and other includes revenue for skilled services (private, Veteran Affairs and hospice payors), senior living and ancillary operations.
(3) All Other incorporates intercompany eliminations.

8.  PROPERTY AND EQUIPMENT - NET
Property and equipment, net consists of the following:
March 31, 2026 December 31, 2025

Land $ 221,208   $ 219,857  
Buildings and improvements 1,288,713   1,231,704  
Leasehold improvements 268,599   254,309  
Equipment 496,938   478,729  
Furniture and fixtures 4,647   4,588  
Construction in progress 19,341   58,615  

  $ 2,299,446   $ 2,247,802  
Less: accumulated depreciation ( 579,221 ) ( 550,939 )
PROPERTY AND EQUIPMENT, NET $ 1,720,225   $ 1,696,863  

Real Estate Acquisitions
A majority of the real estate properties were acquired by subsidiaries of Standard Bearer, as detailed in Note 6 . Standard Bearer . The aggregate purchase price for the real estate purchases during the three months ended March 31, 2026 was $ 18,086 , which primarily consists of building and improveme nts of $ 16,117 and land of $ 1,351 , respectively. The aggregate purchase price for the real estate purchases during the three months ended March 31, 2025 was $ 159,172 , which primarily consists of building and improvements of $ 135,654 and land of $ 20,453 , respectively. The Company finalized the purchase price allocation for certain acquisitions during the three months ended March 31, 2025 resulting in no activities in goodwill during that period.
During the three months ended March 31, 2026, the Company, including Standard Bearer, entered into definitive agreements to acquire real estate assets associated with 19 operations subsequent to March 31, 2026, subject to customary closing conditions, for an aggregate purchase price of approximately $ 342,350 . The real estate assets are associated with 15 stand-alone skilled nursing operations and two campus operations to be operated by the Company's independent subsidiaries and two stand-alone senior living operations to be leased to a third-party operator beginning on May 1, 2026, in each case, assuming the closing of the acquisitions.

9.  INTANGIBLE ASSETS - NET

  March 31, 2026 December 31, 2025

Weighted Average Life (Years)
Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Intangible Assets Net Net

Facility trade name 30.0 733   ( 493 ) 240   733   ( 486 ) 247  
Customer relationships 18.4 4,582   ( 3,166 ) 1,416   4,582   ( 3,114 ) 1,468  
TOTAL   $ 5,315   $ ( 3,659 ) $ 1,656   $ 5,315   $ ( 3,600 ) $ 1,715  

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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

During the three months ended March 31, 2026 and 2025, amortization expense was $ 333 and $ 811 , respectively, of which $ 274 and $ 142 was related to the amortization of right-of-use assets, respectively.

Estimated amortization expense for each of the years ending December 31 is as follows:
Year Amount
2026 (remainder) $ 179  
2027 238  
2028 238  
2029 238  
2030 238  
2031 238  
Thereafter 287  
  $ 1,656  

Other indefinite-lived intangible assets consist of the following:

March 31, 2026 December 31, 2025

Trade name $ 889   $ 889  
Medicare and Medicaid licenses 3,777   3,777  
TOTAL $ 4,666   $ 4,666  

10. GOODWILL
Goodwill is subject to annual testing for impairment during the fourth quarter of each year. In addition, goodwill is tested for impairment if events occur or circumstances indicate that its carrying value may not be recoverable. There were no indicators of goodwill impairment noted during the three months ended March 31, 2026. The Company anticipates that the majority of goodwill recognized will be fully deductible for tax purposes as of March 31, 2026. There were no activities in goodwill during the three months ended March 31, 2026. The following table represents goodwill value by the skilled services segment and "all other" category for March 31, 2026 and December 31, 2025:

  Skilled Services All Other Total

Goodwill $ 88,626   $ 9,355   $ 97,981  

11.  OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:
March 31, 2026 December 31, 2025

Quality assurance fee $ 15,869   $ 17,398  
Refunds, deferred revenue and advances
104,401   105,642  

Cash held in trust for patients 8,208   8,653  

Dividends payable 3,797   3,775  
Property taxes 11,590   7,150  
Income tax payable
27,352   818  
Accrued litigation (Note 18)
12,000   12,000  

Other 19,549   18,591  
OTHER ACCRUED LIABILITIES $ 202,766   $ 174,027  

Quality assurance fee represents the aggregate of amounts payable to various states that have a mandated fee based on patient days or licensed beds. Refunds, deferred revenue and advances consist of liabilities related to duplicate payments and credit balances from various payor sources, as well as payments received from residents in advance of services provided. Cash held in trust for patients reflects monies received from or on behalf of patients. Maintaining a trust account for patients is a regulatory requirement and, while the trust assets offset the liabilities, the Company assumes a fiduciary responsibility for these funds. The cash balance related to this liability is included in other current assets in the condensed consolidated balance sheets.
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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12. INCOME TAXES
The Company recorded income tax expense of $ 28,816 and $ 26,227 during the three months ended March 31, 2026 and 2025, respectively, or 22.4 % of earnings before income taxes for the three months ended March 31, 2026, compared to 24.6 % for the three months ended March 31, 2025. The effective tax rate for both periods is driven by the impact of excess tax benefits from stock-based compensation, offset by non-deductible expenses including non-deductible compensation.

The Company is not currently under examination by any major income tax jurisdiction. During 2026, the statutes of limitations will lapse on the Company's 2022 federal tax year and certain 2021 and 2022 state tax years. The Company does not believe the federal or state statute lapses or any other event will significantly impact the balance of unrecognized tax benefits in the next twelve months. The net balance of unrecognized tax benefits was not material to the Interim Financial Statements for the three months ended March 31, 2026 and 2025.

13. DEBT
Debt consists of the following:

March 31, 2026 December 31, 2025

Mortgage loans and promissory note $ 143,310   $ 144,352  

Less: current maturities ( 4,263 ) ( 4,227 )
Less: debt issuance costs, net ( 2,556 ) ( 2,596 )
LONG-TERM DEBT LESS CURRENT MATURITIES $ 136,491   $ 137,529  

Credit Facility with a Lending Consortium Arranged by Truist

The Company maintains a revolving credit facility between the Company and its independent subsidiaries, including Standard Bearer as co-borrowers, and Truist Securities (Truist) (the Credit Facility) with a revolving line of credit of up to $ 600,000 in aggregate principal amount with a maturity date of 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 the Company's 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.

Borrowings made under the Credit Facility are guaranteed, jointly and severally, by certain of the Company’s wholly-owned subsidiaries, and are secured by a pledge of stock of the Company's material independent subsidiaries as well as a first lien on substantially all of such independent subsidiaries' personal property. The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. Under the terms of the Credit Facility, the Company must comply with financial maintenance covenants to be tested quarterly, consisting of (i) a maximum consolidated total net debt to consolidated EBITDA ratio (which shall not be greater than 3.75 :1.00; provided that if the aggregate consideration for approved acquisitions in a six month period is greater than $ 50,000 , then the ratio can be increased at the election of the Company with notice to the administrative agent to 4.25 :1.00 for the first fiscal quarter and the immediately following three fiscal quarters), and (ii) a minimum interest/rent coverage ratio (which cannot be less than 1.50 :1.00). As of March 31, 2026, there was no outstanding debt under the Credit Facility. The Company was in compliance with all loan covenants as of March 31, 2026.
Mortgage Loans and Promissory Note

As of March 31, 2026, the Company has 23 subsidiaries that have mortgage loans insured with HUD in the aggregate amount of $ 142,571 , which subjects these subsidiaries to HUD oversight and periodic inspections. The mortgage loans bear effective interest rates in a range of 3.1 % to 4.2 %, including fixed interest rates in a range of 2.4 % to 3.3 % per annum. In addition to the interest rate, the Company incurs 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 based on 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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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In addition to the HUD mortgage loans above, the Company has a promissory note of $ 739 that bears a fixed interest rate of 5.3 % per annum and has a term of 12 years. The note, which was assumed as part of 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.

Off-Balance Sheet Arrangements

As of March 31, 2026 and December 31, 2025, the Company had approximately $ 8,402 of borrowing capacity under the Credit Facility pledged as collateral to secure outstanding letters of credit. The Company believes that its outstanding letters of credit as of March 31, 2026 do not require an allowance for expected credit losses, nor has any event occurred through the filing date of this report that would indicate differently.

14. OPTIONS AND AWARDS

Stock-based compensation expense consists of stock-based payment awards made to employees and directors, including employee stock options and restricted stock awards, based on estimated fair values. As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three months ended March 31, 2026 and 2025 was based on awards expected to vest, it has been reduced for estimated forfeitures. The Company estimates forfeitures at the time of grant and, if necessary, revises the estimate in subsequent periods if actual forfeitures differ.

The Company grants equity awards under the Amended and Restated 2022 Omnibus Incentive Plan (the Amended and Restated Plan), the amendment and restatement of which was approved by the Company’s stockholders during the second quarter of 2025. There are 4,231 shares of common stock available for issuance under the Amended and Restated Plan, and the number of shares available for issuance is reduced by one share for each share subject to an option or stock appreciation right award and by two shares for each share subject to an award other than an option or stock appreciation right. At March 31, 2026, 2,804 shares remained available for future issuance under the Amended and Restated Plan.

Non-employee director stock options, to the extent granted, vest and become exercisable in three equal annual installments, or over the term of the award if less than three years , subject to continued service from the grant date through the date of vesting. All other stock options generally vest over five years at a rate of 20 % per year on each anniversary of the grant date. Stock options expire ten years from the grant date.
The Company uses the Black-Scholes option-pricing model to recognize the value of stock-based compensation expense for stock option awards. Determining the appropriate fair-value model and calculating the fair value of stock option awards at the grant date requires judgment, including estimating stock price volatility, expected option life, and forfeiture rates. The fair-value of the restricted stock awards at the grant date is based on the market price on the grant date, adjusted for forfeiture rates. The Company develops estimates based on historical data and market information, which can change significantly over time.
Stock Options
The Company used the following assumptions for stock options granted during the three months ended March 31, 2026 and 2025:

Grant Year Options Granted Weighted Average Risk-Free Rate Expected Life Weighted Average Volatility Weighted Average Dividend Yield
2026 312 3.7 % 6.2 years 38.4 % 0.1 %
2025 152 4.3 % 6.2 years 39.8 % 0.2 %

For the three months ended March 31, 2026 and 2025, the following represents the exercise price and fair value displayed at grant date for stock option grants:

Grant Year Granted Weighted Average Exercise Price Weighted Average Fair Value of Options
2026 312 $ 212.65   $ 93.07  
2025 152 $ 126.34   $ 57.17  

The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the three months ended March 31, 2026 and 2025 and therefore, the intrinsic value was $ 0 at the date of grant.
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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table represents the employee stock option activity during the three months ended March 31, 2026:

Number of Options Outstanding Weighted Average
Exercise Price Number of
Options Vested Weighted Average Exercise Price of Options Vested

January 1, 2026 4,071   $ 96.87   1,991   $ 67.10  
Granted 312   212.65  
Forfeited ( 22 ) 123.35  
Exercised ( 188 ) 61.08  
March 31, 2026 4,173   $ 107.01   1,955   $ 70.45  

The aggregate intrinsic value of options outstanding, vested, expected to vest and exercised as of March 31, 2026 and December 31, 2025 is as follows:

Options March 31, 2026 December 31, 2025

Outstanding $ 397,796   $ 317,984  
Vested 256,158   213,189  
Expected to vest 132,838   98,487  

The intrinsic value is calculated as the difference between the market value of the underlying common stock and the exercise price of the options . The aggregate intrinsic value of options that vested during the three months ended March 31, 2026 and 2025 was $ 12,451 and $ 6,045 , respectively. The total intrinsic value of options exercised during the three months ended March 31, 2026 and 2025 was $ 26,483 and $ 9,470 , respectively.
Restricted Stock Awards
The Company granted 155 and 92 restricted stock awards during the three months ended March 31, 2026 and 2025 , respectively. All awards were granted at an issue price of $ 0 and generally vest over five years . The fair value per share of restricted awards granted during the three months ended March 31, 2026 and 2025 ranged from $ 183.54 to $ 212.65 and $ 126.34 to $ 134.58 , respectively. The fair value per share includes quarterly stock awards to non-employee directors. Included in the restricted stock award grants are $ 13,555 and $ 8,003 of annual bonuses that were settled in vested restricted stock awards during the three months ended March 31, 2026 and 2025, respectively.
A summary of the status of the Company's non-vested restricted stock awards as of March 31, 2026 and changes during the three months ended March 31, 2026 is presented below:

Non-Vested Restricted Awards Weighted Average Grant Date Fair Value

Nonvested at January 1, 2026 436   $ 129.54  
Granted 155   210.77  
Vested ( 100 ) 175.06  
Forfeited ( 5 ) 116.28  
Nonvested at March 31, 2026
486   $ 146.30  

During the three months ended March 31, 2026, the Company granted three automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors. The fair value per share of these stock awards was $ 183.54 based on the market price on the grant date.

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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Stock-based compensation expense
Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the three months ended March 31, 2026 and 2025 was as follows:

Three Months Ended March 31,
  2026 2025
Stock-based compensation expense related to stock options $ 8,652   $ 6,805  
Stock-based compensation expense related to restricted stock awards 4,380   3,402  
Stock-based compensation expense related to restricted stock awards to non-employee directors
661   484  
TOTAL $ 13,693   $ 10,691  

In future periods, the Company expects to recognize approximately $ 121,924 and $ 62,954 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of March 31, 2026. Future stock-based compensation expense will be recognized over 3.9 and 4.0 weighted average years for unvested options and restricted stock awards, respectively. There were 2,218 unvested and outstanding options as of March 31, 2026, of which 2,049 options are expected to vest. The weighted average contractual life for options outstanding, vested and expected to vest as of March 31, 2026 was  6.8 years.

15. LEASES
The Company leases real property associated with 104 independent skilled nursing and senior living facilities under eight triple‑net master lease agreements with CareTrust REIT, Inc. (collectively, the Master Leases). The Master Leases have initial terms ranging from 13 to 20 years and include two or three five‑year renewal options at the Company’s election, subject to customary conditions. If the Company elects to renew the term of a Master Lease, the renewal will be effective to all, but not less than all, of the leased property then subject to such Master Lease.
The Master Leases are non‑cancelable prior to expiration without the consent of CareTrust. Rent consists of a fixed base amount subject to annual escalation equal to the lesser of 2.5 % or the percentage change in the Consumer Price Index (not less than zero ). As triple‑net leases, the Company is responsible for substantially all property‑level operating costs, including taxes, insurance, utilities, and maintenance. Total rent expense under the Master Leases was $ 19,631 and $ 17,126 for the three months ended March 31, 2026 and 2025, respectively.
The Master Leases require the Company to comply with certain financial covenants, including portfolio coverage and minimum rent coverage ratios, as well as customary reporting and other requirements. The Company was in compliance with all such requirements as of March 31, 2026.
The Company leases facilities where its independent subsidiaries operate under non-cancelable operating leases, most of which have initial lease terms ranging from 15 to 20 years. Most of these leases contain renewal options, certain of which involve rent increases.
The Company's 104 independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases with CareTrust, are operated under 19 separate master lease arrangements. Under the master leases, a default at a single facility could subject one or more of the other facilities covered by the same master lease to the same default risk. Failure to comply with Medicare and Medicaid provider requirements is an event of default under several of the Company’s 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 the Company’s 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.

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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The components of operating lease expense are as follows:

Three Months Ended March 31,
2026 2025
Rent - cost of services (1)
$ 65,506   $ 57,076  
Cost of services (2)
6,979   6,429  
General and administrative expense 220   199  

$ 72,705   $ 63,704  

(1) Rent - cost of services includes deferred rent expense adju stments of $ 321 and $ 208 for the three months ended March 31, 2026 and 2025, respectively. Additionally, rent - cost of services includes other variable lease costs such as consumer price index increases and short-term leases of $ 5,131 and $ 4,004 for the three months ended March 31, 2026 and 2025, respectively.
(2) Cost of services includes variable lease costs consisting of property taxes and insurance.

Future minimum lease payments for all third-party leases as of March 31, 2026 are as follows:

Year Amount
2026 (remainder) $ 182,707  
2027 243,258  
2028 242,307  
2029 236,831  
2030 231,410  
2031 221,291  
Thereafter 1,780,951  
TOTAL LEASE PAYMENTS $ 3,138,755  
Less: present value adjustment ( 1,034,869 )
PRESENT VALUE OF TOTAL LEASE LIABILITIES $ 2,103,886  
Less: current lease liabilities ( 116,500 )
LONG-TERM OPERATING LEASE LIABILITIES $ 1,987,386  

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the lease commencement date. As of March 31, 2026, the weighted average remaining lease term is  13.9 years and the weighted average discount rate used to determine the operating lease liabilities is  6.2 %.
Lessor Activities

The Company leases 36 owned real estate properties to third‑party operators, including 32 senior living operations operated by The Pennant Group, Inc. (Pennant). All of the leases are triple‑net arrangements, under which the tenants are responsible for substantially all property‑level operating costs, including taxes, insurance, utilities, and maintenance. The initial terms range from 14 to 16 years.
During the three months ended March 31, 2026, the Company, through Standard Bearer, entered into a definitive agreement to acquire real estate assets associated with two stand-alone senior living operations on May 1, 2026 subject to customary closing conditions. Assuming the closing of the acquisitions, these operations will be leased to a third-party operator beginning on May 1, 2026.
Total rental income from all third-party sources for the three months ended March 31, 2026 and 2025 is as follows:

Three Months Ended March 31,
2026 2025
Pennant (1)
$ 4,213   $ 4,122  
Other third-party (2)
2,680   1,879  
TOTAL $ 6,893   $ 6,001  
(1) Pennant rental income includes variable rent such as property taxes of $ 312 and $ 310 during the three months ended March 31, 2026 and 2025, respectively.
(2) Other third-party includes rental revenue associated with the Company's subleases to third parties of $ 1,135 and $ 1,107 for the three months ended March 31, 2026 and 2025.

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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Future contractual minimum annual rental income for all third-party leases as of March 31, 2026 were as follows:

Year Amount

2026 (remainder) $ 20,641  
2027 26,922  
2028 26,495  
2029 26,380  
2030 25,316  
2031 25,310  
Thereafter 98,758  
TOTAL $ 249,822  

16. DEFINED CONTRIBUTION PLANS

The Company has a 401(k) defined contribution plan (the 401(k) Plan), whereby eligible employees may contribute up to 90 % of their annual basic earnings, subject to applicable annual Internal Revenue Code limits. Additionally, the 401(k) Plan provides for discretionary matching contributions (as defined in the 401(k) Plan) by the Company.

The Company has a non-qualified deferred compensation plan (DCP), whereby highly compensated employees may defer the receipt of a portion of their base compensation and, for certain employees, up to  100 % of their eligible bonuses. Additionally, the DCP allows for the employee deferrals to be deposited into a rabbi trust and the funds are generally invested in individual variable life insurance contracts owned by the Company that are specifically designed to fund savings plans of this nature.

As of March 31, 2026 and December 31, 2025, the Company accrued $ 86,070 and $ 81,553 , respectively, as long term deferred compensation in other long term liabilities on the condensed consolidated balance sheets. Cash surrender value of the contracts is based on investment funds that shadow the investment allocations specified by participants in the deferred compensation plan. Refer to Note 5, Fair Value Measurements for more information on the funds.
For the three months ended March 31, 2026 and 2025, the Company recorded a loss on its DCP of $ 1,694 and $ 282 , respectively, which is included in other income, net. During the same periods, the Company recorded an offsetting reduction in expenses of $ 1,598 and $ 234 , respectively, which is allocated between cost of services and general and administrative expenses.

17. SELF INSURANCE LIABILITIES
The Company is partially self-insured for general and professional liability claims up to a base amount per claim (the self-insured retention) with an aggregate, one-time deductible above this limit. Losses beyond these amounts are insured through third-party policies with coverage limits per claim, per location and on an aggregate basis for the Company. The combined self-insured retention for the Company's independent subsidiaries in California is $ 1,000 per claim ($ 750 if an enforceable arbitration agreement applies), subject to an additional one-time deductible of $ 3,950 . For the independent subsidiaries not in California, the self-insured claim is $ 750 per claim ($ 650 if an enforceable arbitration agreement applies), subject to an additional one-time, deductible of $ 5,100 . For all independent subsidiaries, except those located in Colorado, the third-party coverage above these limits is $ 1,000 per claim, $ 3,000 per operation, with a $ 10,000 blanket aggregate limit and an additional state-specific aggregate where required by state law. In Colorado, the third-party coverage above these limits is $ 1,000 per claim and $ 3,000 per operation, which is independent of the aforementioned blanket aggregate limits that apply outside of Colorado.
The majority of the self-insured retention and deductible limits for general and professional liabilities and workers' compensation liabilities are self-insured through the captive insurance subsidiary, the related assets and liabilities of which are included in the accompanying condensed consolidated balance sheets. The captive insurance subsidiary is subject to certain statutory requirements as an insurance provider.
The Company’s policy is to accrue amounts equal to the actuarial estimated costs to settle open claims of insureds, as well as an estimate of the cost of insured claims that have been incurred but not reported. The Company develops information about the size of the ultimate claims based on historical experience, current industry information and actuarial analysis, and evaluates the estimates for claim loss exposure on a quarterly basis. The Company uses actuarial valuations to estimate the liability based on historical experience and industry information.
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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company’s independent subsidiaries are self-insured for workers’ compensation liabilities in California. To protect itself against loss exposure in California with this policy, the Company has purchased individual specific excess insurance coverage that insures individual claims that exceed $ 625 per occurrence. In Texas, the independent subsidiaries have elected non-subscriber status for workers’ compensation claims and the Company has purchased individual stop-loss coverage that insures individual claims that exceed $ 750 per occurrence. The Company’s independent subsidiaries in all other states, with the exception of Washington, are under a loss sensitive plan that insures individual claims that exceed $ 350 per occurrence. In the State of Washington, the Company is self-insured and has purchased individual specific excess insurance coverage that insures individual claims that exceed $ 500 per occurrence. For all of the self-insured plans and retention, the Company accrues amounts equal to the estimated costs to settle open claims, as well as an estimate of the cost of claims that have been incurred but not reported. The Company uses actuarial valuations to estimate the liability based on historical experience and industry information.
The Company self-funds medical (including prescription drugs) and dental healthcare benefits for the majority of its employees. The Company is fully liable for all financial and legal aspects of these benefit plans. To protect itself against loss exposure with this policy, the Company has purchased individual stop-loss insurance coverage that insures individual claims that exceed $ 525 for each covered person for fiscal year 2026.
The following table represents the Company's self-insurance insurance liabilities, on an undiscounted basis, inclusive of anticipated insurance recoveries, as of March 31, 2026 and December 31, 2025:

March 31, 2026 December 31, 2025

Accrued general liability and professional malpractice liabilities $ 214,460     $ 186,780  
Accrued workers’ compensation liabilities 43,871     42,121  
Accrued health benefits
20,397     17,514  

TOTAL SELF-INSURANCE LIABILITIES $ 278,728   $ 246,415  
Less: current self-insurance liabilities
94,868   81,623  
LONG-TERM SELF-INSURANCE LIABILITIES
$ 183,860   $ 164,792  

The anticipated insurance recoveries included in the self-insurance liabilities are presented gross rather than net with the corresponding asset of $ 19,007 and $ 17,143 , as of March 31, 2026 and December 31, 2025, respectively, included in Restricted and other assets on the consolidated balance sheets.
The Company believes that adequate provision has been made in the Interim Financial Statements for liabilities that may arise out of patient care, workers’ compensation, healthcare benefits and related services provided to date.

18. COMMITMENTS AND CONTINGENCIES
Indemnities — From time to time, the Company enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. 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 these obligations on the Company’s condensed consolidated balance sheets for any of the periods presented.
Litigation and Regulatory Matters — The Company and its independent subsidiaries are party to various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of business. Such claims may be related to, but are not limited to, the Health Insurance Portability and Accountability Act of 1996, alleged Medicare or Medicaid false claims, qui tam or "whistleblower" claims related to alleged violations of the False Claims Act and/or the Anti-Kickback Statute, alleged violations of state and federal wage and hour laws, environmental matters, investigations, examinations, audits and surveys or other claims in connection with the delivery of healthcare and non-healthcare services and general business operations. These claims may come from a variety of governmental agencies, including but not limited to, the following federal agencies: U.S. Department of Health and Human Services (HHS), including the Centers for Disease Control and Prevention (CDC), Centers for Medicare and Medicaid Services (CMS), Office for Civil Rights (OCR) and Office of Inspector General (OIG); U.S. Department of Justice (DOJ); Occupational Safety and Health Administration (OHSA), U.S. Equal Employment Opportunity Commission (EEOC); National Labor Relations Board (NLRB); U.S. Department of Labor (DOL); U.S. Department of Housing and Urban Development (HUD); U.S. Department of Veterans Affairs (VA); Environmental Protection Agency (EPA); and Office of Health Care Affordability (OHCA). In addition to these federal agencies, there are also a variety of state and local authorities with the ability to bring claims against our independent subsidiaries.
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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company and its independent subsidiaries are also subject to requests for information and investigations by other state and federal governmental entities. For example, representatives of the State Attorney General's Office or the State OIG Office may and do request medical records, operational information, and other such documents and materials from the Company's independent subsidiaries. The Company cannot predict or provide any assurance as to the possible outcome of any such request, inquiry, investigation or subsequent litigation. If any such request, inquiry, investigation or related litigation were to proceed, and the Company and/or its independent subsidiaries are subjected to, alleged to be liable for, or agree to a settlement of related claims or obligations under federal Medicare statutes, the FCA, or similar state and federal statutes and regulations. In addition, if the Company and/or its independent subsidiaries are alleged or found to be liable on theories of general or professional negligence or conduct alleged to be related to its employment practices (including wage and hour violations), the Company's business, financial condition and results of operations and cash flows could be materially and adversely affected and its stock price could be adversely impacted. Among other things, any settlement or litigation could involve the payment of substantial sums to settle any alleged violations and may also include the assumption of specific procedural and financial obligations by the Company or its independent subsidiaries under a Corporate Integrity Agreement and/or other such arrangement.
From time to time, various state or Federal agencies may issue requests for information, including but not limited to a subpoena. As an example, California's Office of Health Care Affordability is currently conducting a Cost and Market Impact Review (CMIR) with respect to specific components of a proposed transaction involving three of the Company's independent subsidiaries in California. The Company provided OHCA with requested information regarding specific components of the proposed transaction as part of the CMIR. The Company has been unable to effect resolution including attempts to narrow the scope, and limit the requests to its independent subsidiaries operating in California. The Company has filed a Petition in the Superior Court of the State of California, County of Orange, seeking a declaration that the CMIR regulations violate the United States Constitution and/or the California Constitution, and is void and unenforceable as applied to the Company. It also has requested that OHCA be ordered to withdraw the subpoena and close the inquiry, so the underlying transaction can be completed.
Other claims and suits, including class actions, continue to be filed against the Company and other companies in its industry. The Company and its independent subsidiaries have been subjected to, and are currently involved in, class action litigation alleging violations (alone or in combination) of state and federal wage and hour laws as related to the alleged failure to pay wages, to timely provide and compensate for meal and rest breaks, and related causes of action. In 2025, the Company agreed to settle substantially all alleged wage, hour or labor code-related violations asserted on a class or representative basis against its independent subsidiaries in California for purported violations occurring during the six year period ending December 2025, pending court approval. Accordingly, the Company has recorded an accrual of $ 12,000 within Other accrued liabilities on the condensed consolidated balance sheet as of December 31, 2025. The Company does not believe that the ultimate resolution of these actions will have an ongoing material adverse effect on the Company’s business, cash flows, financial condition or results of operations.
From time to time, the Company has received Civil Investigative Demands (CID) from the U.S. Department of Justice (DOJ). Certain of these matters resulted in settlements that were material to the Company’s financial statements in prior periods. In 2024, the Company, on behalf of its independent subsidiaries, received a CID 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, the Company's 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 . The Company is fully cooperating with the DOJ in response to the CID. However, the Company cannot predict the outcome of the investigation or its potential impact on the consolidated financial statements.
In 2023, following a four-week medical negligence trial in the State of Arizona, the jury returned a verdict against one of the Company’s independent subsidiaries. The Company is in the process of appealing the jury verdict. The Company has in the past appealed similar decisions and has, in some circumstances, received decisions in its favor. Although the Company intends to vigorously defend against these specific 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. The Company has recorded an estimated liability for this matter.

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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Medicare Revenue Recoupments — The Company's independent subsidiaries are subject to regulatory reviews relating to the provision of Medicare and Medicaid services, billings and potential overpayments as a result of Recovery Audit Contractors (RAC), and 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 month 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 rate 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. The Company anticipates that these Reviews could increase in frequency in the future. As of March 31, 2026, and through the filing date of this report, 22 of the Company's independent subsidiaries had multi-claim Reviews scheduled or in process.
Concentrations
Credit Risk — The Company has significant accounts receivable balances, the collectability of which is dependent on the availability of funds from certain governmental programs, primarily Medicare and Medicaid. These receivables represent the only significant concentration of credit risk for the Company. The Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an appropriate allowance has been recorded for the possibility of these receivables proving uncollectible and continually monitors and adjusts these allowances as necessary.
The Company’s receivables from Medicare and Medicaid payor programs accounted for 60.7 % and 61.9 % of its total accounts receivable as of March 31, 2026 and December 31, 2025, respectively. Revenue from reimbursement under the Medicare and Medicaid programs accounted for 69.1 % and 69.5 % of the Company's revenue for the three months ended March 31, 2026 and 2025, respectively.

19. COMMON STOCK REPURCHASE PROGRAM
On May 15, 2025, the Board of Directors approved a stock repurchase program pursuant to which the Company is authorized to repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months from June 16, 2025. During the three months ended March 31, 2026, the Company did not repurchase any shares pursuant to this stock repurchase program. As of March 31, 2026, the full $ 20,000 authorized for repurchase remained available under the stock repurchase program.
On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which the Company was authorized to repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months from March 26, 2025. During the first quarter of 2025, the Company repurchased 84 shares of its common stock for $ 10,775 . Subsequent to March 31, 2025, the Company repurchased an additional 73 shares of its common stock for $ 9,225 . This repurchase program expired upon the repurchase of the fully authorized amount under the plan.
Under the repurchase program, the Company is authorized to repurchase its 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 share repurchase program does not obligate the Company to acquire any specific number of shares. Any such repurchases will depend on the Company's business strategy, prevailing market conditions, the Company's liquidity requirements, contractual restrictions or covenants, compliance with securities laws, and other factors. The amounts involved in any such transaction may be material.

Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed consolidated financial statements and accompanying notes, which appear elsewhere in this Quarterly Report on Form 10-Q. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2025 (Annual Report), which discusses our business and related risks in greater detail, as well as subsequent reports we may file from time to time on Form 10-Q and Form 8-K, for additional information. The section entitled “Risk Factors” contained in Part II, Item 1A of this Quarterly Report on Form 10-Q, and similar discussions in our other SEC filings, also describe some of the important risk factors that may affect our business, financial condition, results of operations and/or liquidity. You should carefully consider those risks, in addition to the other information in this Quarterly Report on Form 10-Q and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock.

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This Quarterly Report on Form 10-Q contains "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, which include, but are not limited to our expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, and plans and objectives of management. Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions, and variations or negatives of these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results could differ materially from those expressed in any forward-looking statements as a result of various factors, some of which are listed under the section “Risk Factors” contained in Part II, Item 1A of this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, and are based on our current expectations, estimates and projections about our industry and business, management’s beliefs, and certain assumptions made by us, all of which are subject to change. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.
Overview
We are a provider of health care services across the post-acute care continuum. We engage in the operation, ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare-related properties and ancillary businesses located in 17 states. Our independent subsidiaries, each of which strive to be the operation of choice in the communities they serve, provide a broad spectrum of services. As of March 31, 2026, we offered skilled nursing, long-term acute care, senior living and rehabilitative care services through 378 skilled nursing and senior living facilities. Our real estate portfolio includes 160 owned real estate properties, which includes 124 facilities operated and managed by us, 36 operations leased to and operated by third-party operators and the Service Center location. Of the 36 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that we own and operate.
The following table summarizes our independent subsidiaries and operational skilled nursing beds and senior living units by ownership status as of March 31, 2026:

Owned and Operated Leased (with a Purchase Option) Leased (without a Purchase Option) Total for Facilities Operated

Number of facilities 124  8  246  378 
Percentage of total 32.8  % 2.1  % 65.1  % 100.0  %
Operational skilled nursing beds 11,923  687  25,939  38,549 
Percentage of total 30.9  % 1.8  % 67.3  % 100.0  %
Senior living units 1,940  142  1,321  3,403 
Percentage of total 57.0  % 4.2  % 38.8  % 100.0  %

The Ensign Group, Inc. is a holding company with no direct operating assets, employees or revenues. Our subsidiaries are operated by separate, independent entities, each of which has its own management, employees and assets. In addition, certain of our wholly-owned subsidiaries including Ensign Services, Inc. and Cornet Limited, Inc., referred to collectively as the Service Center, provide centralized accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other independent subsidiaries. We also have a wholly-owned captive insurance subsidiary that provides some claims-made coverage to our independent subsidiaries for general and professional liability, as well as coverage for certain workers’ compensation insurance liabilities.. Our captive real estate investment trust, Standard Bearer, owns and manages our real estate business. References herein to the consolidated “Company” and “its” assets and activities, as well as the use of the terms “we,” “us,” “our” and similar terms in this Quarterly Report, are not meant to imply, nor should they be construed as meaning that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Ensign Group, Inc.
Our acquisition strategy has been focused on identifying both opportunistic and strategic acquisitions within our target markets that offer strong opportunities for return. The operations added by us are frequently underperforming financially and can have regulatory and clinical challenges to overcome. Financial information, especially with underperforming operations, is often inadequate, inaccurate or unavailable. Consequently, we believe that prior operating results are not a meaningful representation of our current operating results or indicative of the integration potential of our newly acquired independent subsidiaries.

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Recent Activities
We believe we exist to dignify and transform post-acute care. We set out a strategy to achieve our goal of ensuring our patients are receiving the best possible care through our ability to acquire, integrate and improve our operations. Our results serve as a strong indicator that our strategy is working and our transformation is underway. Our dedication to our cultural and operational fundamentals continues to deliver strong results. Refer to Results of Operations for further discussion.
Operational Expansions — During the three months ended March 31, 2026, we expanded our operations with the addition of five stand-alone skilled nursing operations in three states. These new operations added a total of 582 operational skilled nursing beds operated by our independent subsidiaries.
In the same period, we entered into definitive agreements to acquire 15 stand-alone skilled nursing operations and two campus operations in Texas on May 1, 2026, subject to customary closing conditions. Assuming the closing of the acquisitions, these new operations will add 2,080 operational skilled nursing beds and 155 senior living units to be operated by our independent subsidiaries. These acquisitions establish Texas as our largest state by skilled nursing and senior living operations, totaling 105 operations, and reaffirm our continued growth in the markets where we began in 1999.
Standard Bearer Acquisitions — Standard Bearer Healthcare REIT, Inc. (Standard Bearer), our captive REIT, is a holding company with subsidiaries that own a majority of our real estate portfolio. Management believes that the REIT structure enhances transparency into the value of the Company’s owned real estate and provides an efficient platform to support future property acquisitions, which may be operated by the our independent subsidiaries or leased to third‑party operators.
During the three months ended March 31, 2026, Standard Bearer added $17.5 million of real estate assets associated with two stand-alone skilled nursing operations operated by our independent subsidiaries . In addition, during the same period, two stand‑alone skilled nursing operations owned by Standard Bearer were transitioned from third‑party operators to our independent subsidiaries.
In addition, during the three months ended March 31, 2026, we entered into definitive agreements to acquire real estate assets associated with 19 operations subsequent to March 31, 2026, subject to customary closing conditions, for an aggregate purchase price of approximately $342.4 million. The real estate assets are associated with 15 stand-alone skilled nursing operations and two campus operations to be operated by our independent subsidiaries and two stand-alone senior living operations to be leased to a third-party operator beginning on May 1, 2026, in each case, assuming the closing of the acquisitions.
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Facility Information
The following table sets forth the location of our facilities and the number of operational beds and units located at our skilled nursing, senior living and campus facilities as of March 31, 2026:

Facility Counts Bed / Unit Counts
Skilled Operations Senior Living Communities Campus Operations (1)
Total Skilled Operational Beds Senior Living Units Total Beds / Units
Texas 82 1 5 88 10,501 606 11,107
California 78 4 3 85 8,247 378 8,625
Arizona 35 1 6 42 5,396 891 6,287
Colorado 33 5 1 39 3,567 633 4,200
Utah
26 2 1 29 2,412 163 2,575
Washington 17 1 — 18 1,608 98 1,706
Idaho 14 — 1 15 1,331 21 1,352
Kansas 4 — 8 12 883 251 1,134
Tennessee 11 — — 11 1,122 — 1,122
South Carolina 9 — — 9 1,126 — 1,126
Iowa 7 — 2 9 602 31 633
Nebraska 4 1 3 8 496 199 695
Wisconsin 5 — — 5 350 — 350
Nevada 3 — — 3 483 — 483
Alaska 1 1 — 2 146 82 228
Alabama 2 — — 2 181 — 181
Oregon — — 1 1 98 50 148
331 16 31 378 38,549 3,403 41,952
(1) Campuses represent facilities that offer both skilled nursing and senior living services.

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The following table provides summary information regarding the location of our owned and operated real estate properties as of March 31, 2026:

Facility Counts Bed / Unit Counts
Skilled Operations Senior Living Communities Campus Operations (1)
Total Skilled Operational Beds Senior Living Units Total Beds / Units
Texas 25 1 4 30 3,336 576 3,912
Arizona 12 — 5 17 2,052 494 2,546
Utah 15 — — 15 1,102 — 1,102
California 11 — 1 12 1,291 42 1,333
Colorado 6 3 — 9 593 369 962
Kansas 2 — 5 7 495 167 662
Washington 6 — — 6 621 — 621
Idaho 6 — — 6 590 — 590
South Carolina 5 — — 5 544 — 544
Wisconsin 5 — — 5 350 — 350
Nebraska 1 1 1 3 171 160 331
Tennessee 3 — — 3 300 — 300
Iowa 3 — — 3 234 — 234
Alaska 1 1 — 2 146 82 228
Oregon — — 1 1 98 50 148

101 6 17 124 11,923 1,940 13,863
(1) Campuses represent facilities that offer both skilled nursing and senior living services.

The following table provides summary information regarding the location of our owned real estate properties as of March 31, 2026:

Owned and Operated by Ensign (1)
Owned and Leased to Third-Party Operators (1)
Service Center Total Properties (1)

Texas (1)
30 7 — 36
Wisconsin 5 22 — 27
Arizona 17 1 — 18
Utah 15 — — 15
California
12 2 1 15
Colorado 9 — — 9
Washington 6 3 — 9
Kansas 7 — — 7
Idaho 6 — — 6
South Carolina 5 — — 5
Iowa 3 — — 3
Nebraska 3 — — 3
Tennessee 3 — — 3
Alaska 2 — — 2
Oregon 1 — — 1
Nevada — 1 — 1

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(1) One senior living operation in Texas, which is owned by an independent subsidiary of Ensign and leased to a third-party operator, is located on the same real estate property as a skilled nursing facility that we own and operate. In this situation, the senior living operation is included in the total under "Owned and Leased to Third Party Operators" and the skilled nursing operation is included in the total under "Owned and Operated by Ensign", however, the amount reflected under "Total Properties" only recognizes the operation as a single property.

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Key Performance Indicators
We manage the fiscal aspects of our business by monitoring key performance indicators that affect our financial performance. Revenue associated with these metrics is generated based on contractually agreed-upon amounts or rate, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606. These indicators and their definitions include the following:
Skilled Services
• Routine revenue — Routine revenue is generated by the contracted daily rate charged for all contractually inclusive skilled nursing services. The inclusion of therapy and other ancillary treatments varies by payor source and by contract. Services provided outside of the routine contractual agreement are recorded separately as ancillary revenue, including Medicare Part B therapy services, and are not included in the routine revenue definition.
• Skilled revenue — The amount of routine revenue generated from patients in the skilled nursing facilities who are receiving higher levels of care under Medicare, managed care, Medicaid, or other skilled reimbursement programs. The other skilled patients who are included in this population represent very high acuity patients who are receiving high levels of nursing and ancillary services which are reimbursed by payors other than Medicare or managed care. Skilled revenue excludes any revenue generated from our senior living services.
• Skilled mix — The amount of our skilled revenue as a percentage of our total skilled nursing routine revenue. Skilled mix (in days) represents the number of days our Medicare, managed care, or other skilled patients are receiving skilled nursing services at the skilled nursing facilities divided by the total number of days patients from all payor sources are receiving skilled nursing services at the skilled nursing facilities for any given period.
• Average daily rates — The routine revenue by payor source for a period at the skilled nursing facilities divided by actual patient days for that revenue source for that given period.
• Occupancy percentage (operational beds) — The total number of patients occupying a bed in a skilled nursing facility as a percentage of the beds in a facility which are available for occupancy during the measurement period.
• Number of facilities and operational beds — The total number of skilled nursing facilities that we own or operate, and the total number of operational beds associated with these facilities.
Skilled Mix — Like most skilled nursing providers, we measure both patient days and revenue by payor. Medicare, managed care and other skilled patients, whom we refer to as high acuity patients, typically require a higher level of skilled nursing and rehabilitative care. Accordingly, Medicare and managed care reimbursement rates are typically higher than from other payors. In most states, Medicaid reimbursement rates are generally the lowest of all payor types. Changes in the payor mix can significantly affect our revenue and profitability.

The following table summarizes our overall skilled mix from our skilled nursing services for the periods indicated as a percentage of our total skilled nursing routine revenue and as a percentage of total skilled nursing patient days:

Three Months Ended March 31,
Skilled Mix: 2026 2025
Days 32.0  % 31.4  %
Revenue 50.7  % 50.2  %

Occupancy — We define occupancy derived from our skilled services as the ratio of actual patient days (one patient day equals one patient occupying one bed for one day) during any measurement period to the number of beds in facilities which are available for occupancy during the measurement period. The number of beds in a skilled nursing facility that are actually operational and available for occupancy may be less than the total official licensed bed capacity. This sometimes occurs due to the permanent dedication of bed space to alternative purposes, such as enhanced therapy treatment space or other desirable uses calculated to improve service offerings and/or operational efficiencies in a facility. In some cases, three- and four-bed wards have been reduced to two-bed rooms for resident comfort, and larger wards have been reduced to conform to changes in Medicare requirements. These beds are seldom expected to be placed back into service. We believe that reporting occupancy based on operational beds is consistent with industry practices and provides a more useful measure of actual occupancy performance from period to period.

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The following table summarizes our overall occupancy statistics for skilled nursing operations for the periods indicated:

Three Months Ended March 31,
Occupancy for skilled services: 2026 2025
Operational beds at end of period 38,549  34,946 
Available patient days 3,449,159  3,099,677 
Actual patient days 2,896,034  2,538,135 
Occupancy percentage (based on operational beds) 84.0  % 81.9  %

Segments
We have two reportable segments: (1) skilled services, which includes the operation of skilled nursing facilities and rehabilitation therapy services and (2) Standard Bearer, which is comprised of select properties owned by us through our captive REIT and leased to skilled nursing and senior living operations, including our own independent subsidiaries and third-party operators.
We also reported an “all other” category that includes operating results from our senior living operations, mobile diagnostics, transportation, other real estate and other ancillary operations. These businesses are neither significant individually, nor in aggregate and therefore do not constitute a reportable segment. Our Chief Executive Officer, who is our chief operating decision maker, or CODM, reviews financial information at the operating segment level.

Revenue Sources
The following tables set forth our total service revenue by payor source generated by our skilled services segment and our "All Other" category and as a percentage of total revenue for the periods indicated (dollars in thousands):

  Three Months Ended March 31,
Skilled Services All Other (3)
Total Service Revenue
2026 2025 2026 2025 2026 2025
Medicaid (1)
$ 529,333  $ 443,411  $ 14,117  $ 10,429  $ 543,450  $ 453,840 
Medicare 335,829  287,751  —  —  335,829  287,751 
Medicaid-skilled 75,238  69,551  —  —  75,238  69,551 
Subtotal $ 940,400   $ 800,713   $ 14,117   $ 10,429   $ 954,517   $ 811,142  
Managed care 260,851  227,217  —  —  260,851  227,217 
Private and other (2)
129,584  95,624  37,351  33,057  166,935  128,681 
TOTAL SERVICE REVENUE $ 1,330,835   $ 1,123,554   $ 51,468   $ 43,486   $ 1,382,303   $ 1,167,040  

  Three Months Ended March 31,
Skilled Services All Other (3)
Total Service Revenue
2026 2025 2026 2025 2026 2025
Medicaid (1)
39.8  % 39.5  % 27.4  % 24.0  % 39.3  % 38.9  %
Medicare 25.2  25.6  —  —  24.3  24.7 
Medicaid-skilled 5.7  6.2  —  —  5.5  5.9 
Subtotal 70.7   % 71.3   % 27.4   % 24.0   % 69.1   % 69.5   %
Managed care 19.6  20.2  —  —  18.9  19.5 
Private and other (2)
9.7  8.5  72.6  76.0  12.0  11.0 
TOTAL SERVICE REVENUE 100.0   % 100.0   % 100.0   % 100.0   % 100.0   % 100.0   %
(1) Medicaid payor includes revenue for senior living operations.

(2) Private and other includes revenue for skilled services (private, Veteran Affairs and hospice payors), senior living and ancillary operations.

(3) All Other incorporates intercompany eliminations.

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GOVERNMENT REGULATION
General
Healthcare is an area of extensive and frequent regulatory change. Changes in the law or new interpretations of existing laws may have a significant impact on our revenue, costs and business operations. Our independent subsidiaries that provide healthcare services are subject to federal, state and local laws relating to, among other things, licensure, quality and adequacy of care, physical plant requirements, life safety, personnel and operating policies. In addition, these same subsidiaries are subject to federal and state laws that govern billing and reimbursement, relationships with vendors, business relationships with physicians and workplace protection for healthcare staff. Such laws include (but are not limited to) the Anti-Kickback Statute (AKS), the federal False Claims Act (FCA), the federal prohibition on physician self-referral known as the Stark Law, state law, and state corporate practice of medicine statutes.
Governmental and other authorities periodically inspect our independent subsidiaries to verify continued compliance with applicable regulations and standards. The operations must pass these inspections to remain licensed under state laws and to comply with Medicare and Medicaid provider agreements and applicable Conditions of Participation. The operations can only participate in these third-party payment programs if unannounced inspections by regulatory authorities reveal that the operations are in substantial compliance with applicable state and federal requirements. In the ordinary course of business, federal or state regulatory authorities may issue notices to the operations alleging deficiencies in certain regulatory practices, which may require corrective action to regain and maintain compliance. In some cases, federal or state regulators may impose other remedies including imposition of directed in-service training, state monitoring, civil monetary penalties, temporary admission and/or payment bans, loss of certification as a provider in the Medicare or Medicaid programs, or revocation of a state operating license.
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 senior living facilities:
Final Rule Updating Health-Care Related Tax Policies — On February 2, 2026, CMS published a final rule, effective April 3, 2026, related to the statistical test used to evaluate state Medicaid health care-related tax waiver requests, implementing requirements codified in the One Big Beautiful Bill (OBBB). In relevant part, this rule limits the circumstances under which states may obtain waivers from CMS to impose taxes that fund state Medicaid programs by assessing taxes that impose a greater burden on Medicaid-participating organizations (whether based on volume or percentage of Medicaid taxable units) than the burden imposed on organizations that do not participate in Medicaid, or have relatively less Medicaid participation. While the rule primarily targets managed care organization taxes, it applies to all permissible provider tax classes, including nursing facilities, for which CMS has identified at least two existing taxes that appear to exploit the loophole. Non-MCO provider taxes, including nursing facility taxes, have a compliance deadline of the end of the applicable state fiscal year ending in calendar year 2028 (no later than September 30, 2028).
Federal Nurse Staffing Legislation — Following the repeal of the federal minimum staffing requirements in December 2025, there has been legislation introduced in Congress, that if enacted, would impose mandatory minimum staffing requirements for skilled nursing facilities participating in the Medicare and Medicaid Programs.

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Controlled Substances Act Telemedicine Flexibilities — On December 31, 2025, the Drug Enforcement Administration (DEA) in coordination with the HHS, issued a fourth extension of certain telemedicine flexibilities related to the prescribing of controlled substances, extending these provisions through December 31, 2026. Under the Ryan Haight Online Pharmacy Consumer Protection Act of 2008, practitioners are generally required to conduct at least one in-person medical evaluation before prescribing controlled substances to a patient via telemedicine.
Consolidated Appropriations Act of 2026 (CAA 2026) — On February 3, 2026, the Consolidated Appropriations Act of 2026 (CAA 2026) was passed, which further extended government funding through September 30, 2026. Of specific importance to our businesses are:
• Telehealth Waivers: Since the COVID-19 Pandemic, Congress has temporarily waived restrictions so Medicare beneficiaries can access telehealth services at home and outside of rural areas. Medicare recipients can now continue using telehealth under these relaxed rules, regardless of location. The waivers expired on September 30th but were reinstated effective October 1, 2025 and extended through December 31, 2027. Specifically, key waivers that were restored temporarily include:
• Lifting geographic limitations for medical telehealth services, allowing them to be provided nationwide, including in a person's home such as an assisted living residence.
• Allowing physical therapists, occupational therapists and speech-language pathologists to deliver telehealth services.
• Delay the Medicare requirement for in-person visits for mental health services provided through telehealth or audio-only telecommunications technology.
• Permits telehealth to be used for face-to-face encounters required for Hospice recertification purposes.
• Work Geographic Index Floor: Temporarily and retroactively restores nationwide payment floor multiplier for the work component of Medicare Part B services paid under the physician fee schedule. This is effective October 1, 2025 through at least September 30, 2026.
• Extension of Funding for Quality Measure Endorsement, Input, and Selection: This extends such funding through September 30, 2026.
• Sequestration : This legislation prevents the triggering of statutory 4.0% Statutory Pay-As-You-Go Act of 2010 (PAYGO) sequestration cuts to Medicare ( See Sequestration of Medicare Rates below).
CMS has issued guidance instructing Medicare Administrative Contractors (MACs) to perform mass adjustments to any paid claims that are inconsistent with the above and instructing Practitioners to resubmit to CMS any returned claims that were previously determined not payable during the shutdown.
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 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. In February 2026, CMS issued a final rule implementing these requirements as they pertain to granting state-requested waivers for imposing Medicaid provider taxes to fund those states' Medicaid programs. See Item 1., Government Regulation, Proposed, Anticipated and Recently Issued Rulemaking and Administrative Actions - Closing a Health Care-Related Tax Loophole Final Rule.
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. CMS issued implementing guidance on February 2, 2026, clarifying that SDPs covering rating periods for CY 2024 to CY 2026 may be grandfathered and qualify for protection from the OBBB's reductions in payment, provided that a state seeking this protection provided CMS with completed forms seeking approval for such directed payments before May 1, 2025; however, grandfathered dollar amounts are frozen at current approved levels and cannot be increased through any preprint version, amendment, or renewal. SDPs in rating periods beginning on or after March 30, 2026, will not qualify for grandfathering and must immediately comply with the new payment caps based on Medicare payment 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 without federal contributions to Medicaid. 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.

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Medicare Annual Payment Rule — On April 2, 2026, CMS released the proposed FY 2027 Skilled Nursing Facility Prospective Payment System Final Rule (FY 2027 PPS) which proposes a net 2.4% increase in to the SNF PPS payment rates. The increase is based on a proposed SNF market basket of 3.2% partially offset by a negative 0.8% productivity adjustment. CMS did not propose major changes to the Patient‑Driven Payment Model (PDPM), but is seeking public input on whether updates may be needed to address possible case‑mix coding concerns and improve payment accuracy. CMS is also considering requiring all‑payer Minimum Data Set (MDS) reporting for skilled stays in the future. In addition, CMS proposed several updates to the SNF Quality Reporting Program (QRP) and SNF Value-Based Purchasing Program (VBP), including the planned removal of two COVID‑19 vaccination measures beginning in fiscal year 2028, changes to data submission deadlines, and updates to performance standards. CMS is also requesting feedback on alternative wage index approaches designed specifically for skilled nursing facilities.
On July 31, 2025, CMS released the FY 2026 PPS outlining the following key changes:
FY 2026 Final Updates to the SNF Payment Rates — For fiscal year 2026, which began 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 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.
SNF 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 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 October 31, 2025, CMS issued the CY 2026 Medicare Physician Fee Schedule (CY 2026 PFS) Final 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 finalized a qualifying AAPM participant conversion factor of $33.57, representing a 3.77% increase over the CY 2025 conversion factor of $32.35. The non-AAPM participant conversion factor is $33.40, a 3.26% increase over such the CY 2025 conversion factor.
Payment Adjustments — Under the CY 2026 PFS, CMS decreases 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.

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Telehealth — Among other things, CMS finalized changes to the Medicare Telehealth Services List (MTSL) by adding additional services and 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. Notably, CMS increased the originating site facility fee to $31.85 for CY 2026.
These 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.
Medicare
Medicare presently accounts for approximately 25.2% 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 PPS implemented the 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 - physical 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.
CMS continues to revise 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.
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CMS has also 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. The DC Function 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 FY 2024 PPS 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. However, this measure may be removed in the future pending final rules published as a result of the FY 2027 PPS. The FY 2024 PPS also removed the Application of Functional Assessment/Care Plan measures from the SNF QRP.
Under the FY 2024 PPS, 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. However, this measure may be removed in the future pending final rules published as a result of the FY 2027 PPS.
CMS’s FY 2025 PPS 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 FY 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 VBP Program.
Starting in FY 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 FY 2026 PPS, four standardized patient assessment data elements within the 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.

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 CY 2025 Home Health PPS, long-term care facilities, including SNFs, have been required to submit at least weekly reports to CMS on respiratory illnesses beginning January 1, 2025. 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 the end of 2025, unless Congress takes further action. The Consolidated Appropriations Act of 2023 (CAA 2023), waived a further 4.0% cut to Medicare spending that would have been required under the Statutory Pay-As-You-Go Act of 2010 (PAYGO) 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%. 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. As part of the Continuing Resolution that ended the federal government shutdown in late 2025 (CR), Congress reset the balances on PAYGO scorecard, which are used to determine whether a law creates a sufficient amount of budget deficit that it would require mandatory spending cuts like those to Medicare, to zero. Because the OBBB's requirements were likely to result in a deficit, the 4.0% deduction required by sequestration was expected to start in January of 2026 before the CR's passage. However, as the CR reset the PAYGO scorecards to zero, the expected 4.0% reduction of Medicare rates under sequestration will not materialize, further delaying the 4.0% reduction. On February 3, 2026, the CAA 2026 was passed and keeps the protections from the CR in place.
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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 fiscal year 2023. The FY 2023 PPS 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 PPS, CMS elected to replace the SNFRM measure with the SNF WS 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 PPS 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.
The FY 2026 PPS 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 to the SNF 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.

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Certain of our Part B services provided through telehealth would qualify for Medicare reimbursement based on flexibility first provided under the emergency waivers first issued during PHE, which added physical therapy (PT), occupational therapy (OT) and speech-language pathology (SLP) to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF. During the 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. These flexibilities were most recently extended by the CAA 2026 through December 31, 2027.
The CY 2025 PFS adopted a regulatory change that allowed physical therapy assistants and occupational therapy assistants to be generally supervised by physical therapists and occupational therapists, respectively, in private practice, non-institutional settings, thus allowing greater flexibility in billing for those assistants’ services. Additionally, the CY 2025 PFS excepted a therapist-established initial plan of care (POC) for PT, OT, or SLT services from the requirement for 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 of the POC. While the OBBB did not affect the CY 2025 PFS, the OBBB provided a one-year increase of 2.5% to the CF for services provided between January 1, 2026 and January 1, 2027.
Under the CY 2026 PFS, the 2.93% increase to the 2024 PFS Conversion Factor (CF) expired and CMS sought to impose an estimated 0.05% adjustment thereto based on changes in work relative value units (RVUs) for certain services. As a result, the CY 2025 PFS implemented a reimbursement reduction of 2.83%, with a CF of $32.35, which is a reduction from the 2024 CF of $33.29. The CY 2025 PFS 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.
In addition, the CY 2026 PFS contains numerous significant changes regarding payment and models, encourages care coordination, reduces collection and reporting of data measurements, and continues certain telehealth flexibilities that began during the PHE ( see Medicare Part B Fee Schedule above ).
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.
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