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ENSIGN GROUP, INC - Quarter Report: 2025 March (Form 10-Q)

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☐Nowhether 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☐Nowhether 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:þAccelerated filer☐Non-accelerated filer☐Smaller reporting companyEmerging growth companyIf 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
As of April 24, 2025, 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, 2025
TABLE OF CONTENTS

Pg.
Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024
1
Condensed Consolidated Statements of Income for the three months ended March 31, 2025 and 2024
2
Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2025 and 2024
3
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024
4
Notes to Condensed Consolidated Financial Statements
6
26
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PART I.
Item 1.     FINANCIAL STATEMENTS
THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
March 31, 2025December 31, 2024
ASSETS  
Current assets:   
Cash and cash equivalents$ $ 
Accounts receivable—less allowance for doubtful accounts of $ and $ at March 31, 2025 and December 31, 2024, respectively
  
Investments—current  
Prepaid expenses and other current assets  
Total current assets$ $ 
Property and equipment, net  
Right-of-use assets   
Insurance subsidiary deposits and investments   
Deferred tax assets  
Restricted and other assets   
Intangible assets, net   
Goodwill  
TOTAL ASSETS$ $ 
LIABILITIES AND EQUITY  
Current liabilities:  
Accounts payable$ $ 
Accrued wages and related liabilities  
Lease liabilities—current   
Accrued self-insurance liabilities—current  
Other accrued liabilities   
Current maturities of long-term debt  
Total current liabilities$ $ 
Long-term debt—less current maturities  
Long-term lease liabilities—less current portion   
Accrued self-insurance liabilities—less current portion  
Other long-term liabilities  
TOTAL LIABILITIES$ $ 
Commitments and contingencies (Notes 14 and 19)
EQUITY  
Ensign Group, Inc. stockholders' equity:
Common stock: $ par value; shares authorized; and shares issued and shares outstanding at March 31, 2025, respectively, and and shares issued and shares outstanding at December 31, 2024, respectively
  
Additional paid-in capital  
Retained earnings  
Common stock in treasury, at cost, and shares at March 31, 2025 and December 31, 2024, respectively
()()
Total Ensign Group, Inc. stockholders' equity$ $ 
Non-controlling interest  
Total equity$ $ 
TOTAL LIABILITIES AND EQUITY$ $ 
See accompanying notes to condensed consolidated financial statements.
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THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,
 20252024
(In thousands, except per share data)
REVENUE
Service revenue$ $ 
Rental revenue  
TOTAL REVENUE$ $ 
Expense:
Cost of services  
Rent—cost of services   
General and administrative expense  
Depreciation and amortization  
TOTAL EXPENSES$ $ 
Income from operations  
Other income (expense):
Interest expense()()
Interest income  
Other income
  
OTHER INCOME, NET
$ $ 
Income before provision for income taxes  
Provision for income taxes  
NET INCOME$ $ 
Less:
Net income attributable to noncontrolling interests  
NET INCOME ATTRIBUTABLE TO THE ENSIGN GROUP, INC.
$ $ 
NET INCOME PER SHARE ATTRIBUTABLE TO THE ENSIGN GROUP INC.
Basic $ $ 
Diluted$ $ 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic  
Diluted  
See accompanying notes to condensed consolidated financial statements.
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THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 Common Stock Additional Paid-In Capital Retained Earnings Treasury StockNon-Controlling Interest
(In thousands)Shares Amount   Shares AmountTotal
BALANCE - JANUARY 1, 2025 $ $ $  $()$ $ 
Issuance of common stock to employees and directors resulting from the exercise of stock options —  — — — —  
Issuance of restricted stock, net of forfeitures  —  — — — —  
Shares of common stock used to satisfy tax withholding obligations— — — — — ()— ()
Dividends declared ($ per share)
— — — ()— — — ()
Employee stock award compensation— —  — — — —  
Repurchase of common stock (Note 20)
()— — —  ()— ()
Acquisition of noncontrolling interest shares— — ()— — — — ()
Net income attributable to noncontrolling interest— — — — — —   
Noncontrolling interests attributable to subsidiary equity plan— —  — — — () 
Net income attributable to the Ensign Group, Inc.— — —  — — —  
BALANCE - MARCH 31, 2025 $ $ $  $()$ $ 


 Common Stock Additional Paid-In Capital Retained Earnings Treasury StockNon-Controlling Interest
(In thousands)Shares Amount   Shares AmountTotal
BALANCE - JANUARY 1, 2024 $ $ $  $()$ $ 
Issuance of common stock to employees and directors resulting from the exercise of stock options —  — — — —  
Issuance of restricted stock, net of forfeitures —  — — — —  
Shares of common stock used to satisfy tax withholding obligations— — — — — ()— ()
Dividends declared ($ per share)
— — — ()— — — ()
Employee stock award compensation— —  — — — —  
Acquisition of noncontrolling interest shares— — ()— — — — ()
Net income attributable to noncontrolling interest— — — — — —   
Noncontrolling interests attributable to subsidiary equity plan— —  — — — () 
Net income attributable to the Ensign Group, Inc.— — —  — — —  
BALANCE - MARCH 31, 2024 $ $ $  $()$ $ 
See accompanying notes to condensed consolidated financial statements.
3
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THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
(In thousands)20252024
Cash flows from operating activities:  
Net income $ $ 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization  
Amortization of deferred financing fees  
Non-cash leasing arrangement   
Impairment of long-lived assets  
Deferred income taxes   
Provision for doubtful accounts   
Stock-based compensation  
Cash received from insurance proceeds  
Loss (gain) on insurance claims and asset disposals
 ()
Change in operating assets and liabilities 
Accounts receivable ()()
Prepaid income taxes  
Prepaid expenses and other assets()()
Cash surrender value of life insurance policy premiums()()
Deferred compensation liability  
Operating lease obligations() 
Accounts payable()()
Accrued wages and related liabilities()()
Income taxes payable  
Other accrued liabilities ()
Accrued self-insurance liabilities  
NET CASH PROVIDED BY OPERATING ACTIVITIES
$ $ 
Cash flows from investing activities:  
Purchase of property and equipment()()
Cash payments for acquisitions
()()
Escrow deposits()()
Cash from insurance proceeds and the sale of assets  
Purchases of investments()()
Maturities of investments  
Other restricted assets()()
NET CASH USED IN INVESTING ACTIVITIES
$()$()
Cash flows from financing activities:  
Payments on debt ()()
Issuance of common stock upon exercise of options  
Repurchase of shares of common stock to satisfy tax withholding obligations()()
Repurchase of shares of common stock (Note 20)
() 
Dividends paid()()
Non-controlling interest distribution ()
Purchase of non-controlling interest()()
NET CASH (USED IN)/PROVIDED BY IN FINANCING ACTIVITIES
$()$ 
Net (decrease) increase in cash and cash equivalents
() 
Cash and cash equivalents beginning of period  
Cash and cash equivalents end of period$ $ 
4
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Three Months Ended March 31,
(In thousands)20252024
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION  
Cash paid during the period for:  
Interest$ $ 
Lease liabilities  
Non-cash financing and investing activity 
Accrued capital expenditures$ $ 
Accrued dividends declared  
Right-of-use assets obtained in exchange for new and modified operating lease obligations  

See accompanying notes to condensed consolidated financial statements.
5
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THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars, shares and options in thousands, except per share data)
1.
facilities and other ancillary operations located in Alabama, Alaska, Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oregon, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin. The Company's independent subsidiaries have a collective capacity of approximately operational skilled nursing beds and senior living units. As of March 31, 2025, the Company's independent subsidiaries operated facilities under long-term lease arrangements and had options to purchase of those facilities. The Company's real estate portfolio consists of owned real estate properties, which includes facilities operated and managed by the Company's independent subsidiaries, operations leased to and operated by third-party operators and the Service Center (defined below) location. Of those third-party operations, senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.
Certain of the Company’s wholly-owned independent subsidiaries, collectively referred to as the Service Center, provide specific accounting, payroll, human resources, 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.
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.
Each of the Company's independent subsidiaries are operated by wholly-owned subsidiaries that have their 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, 2025 and for the three months ended March 31, 2025 and 2024 (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, 2024 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.
2.
6
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


3.

% and % of all service revenue for the three months ended March 31, 2025 and 2024, respectively. Settlements with Medicare and Medicaid 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, 2025 and 2024.


7
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


  %$  %Medicare    Medicaid — skilled    Total Medicaid and Medicare$  %$  %Managed care    
Private and other(2)
    SERVICE REVENUE$  %$  %
(1) Medicaid payor includes revenue for senior living operations.
(2) Private and other also includes revenue from senior living operations and all revenue generated in other ancillary services.
In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties was $ and $, respectively, for the three months ended March 31, 2025 and 2024.
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 and contract assets as of March 31, 2025 and December 31, 2024, or activity during the three months ended March 31, 2025 and 2024.

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.
 $ Managed care  Medicare  Private and other payors   $ $ Less: allowance for doubtful accounts()()ACCOUNTS RECEIVABLE, NET$ $ 
4.


8
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


 $    $ DENOMINATOR:   $ 

 $    $ DENOMINATOR:       $ 
and for the three months ended March 31, 2025 and 2024, respectivel
5.

and $, of which $ and $ are designated to support long-term insurance subsidiary liabilities, as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025 and December 31, 2024, 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, 2025 and December 31, 2024 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.

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, 2025 and December 31, 2024, the fair value of the investment funds was $ and $, respectively, which are derived using Level 2 inputs.

9
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


6.
of the Company's owned real estate properties, of which are operated and managed by the Company's independent subsidiaries and are leased to and operated by third-party operators. Of those operations, 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, 2025, Standard Bearer added $ of real estate assets associated with stand-alone skilled nursing operations, stand-alone senior living operation and campus operations. of the acquisitions were related to exercising purchase options under an existing lease arrangement from CareTrust REIT, Inc. (CareTrust). All these additions are operated by the Company's independent subsidiaries. Refer to Note 7, Operation Expansions, for additional information.
Subsequent to March 31, 2025, Standard Bearer added $ of real estate assets associated with stand-alone skilled nursing operations, of which was leased back to the Company's independent subsidiaries and leased to a third-party operator. Refer to Note 7, Operation Expansions, for additional information.
As of the date of this filing, the preliminary allocation of the purchase price for the acquisitions in the first quarter and subsequently has not been finalized, as necessary valuation information was not yet available.
During the three months ended March 31, 2024, Standard Bearer added $ of real estate assets associated with skilled nursing facility, which is operated by the Company's independent subsidiary. Refer to Note 7, Operation Expansions, for additional information.
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 8, 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 Standard Bearer independent real estate subsidiaries have entered into triple-net master lease agreements (collectively, the Standard Bearer Master Leases). The lease periods range from to years with 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 ) or (2) %. 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, 2025 and 2024 was $ and $, respectively.
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 % of total rental revenue and an incentive management fee that is equal to % of funds from operations (FFO) and is capped at % of total rental revenue, for a total of %. Management fee generated between Standard Bearer and the Service Center for the three months ended March 31, 2025 and 2024 was $ and $, respectively, both representing % of total Standard Bearer rental revenue.
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 % to % per annum or SOFR plus a margin ranging from % to % per annum.
10
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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, 2025 and 2024, the Company did grant any stock options or restricted shares under the Standard Bearer Equity Plan. During the three months ended March 31, 2025 and 2024, there were 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, 2025, the Standard Bearer Equity Plan's share-based compensation expense was not material. There was expense during the three months ended March 31, 2024.
7. 
stand-alone skilled nursing operations, stand-alone senior living operation and campus operation. Of these additions, Standard Bearer acquired the real estate of of these operations, all of which were leased back to the Company's independent subsidiaries. Refer to Note 6, Standard Bearer, for additional information on the purchase of real estate properties. These new operations added a total of operational skilled nursing beds and operational senior living units to be operated by the Company's independent subsidiaries.
Subsequent to March 31, 2025, the Company expanded its operations through a combination of long-term leases and real estate purchases, with the addition of stand-alone skilled nursing operations and stand-alone senior living operation. Of these additions, Standard Bearer acquired the real estate of stand-alone skilled nursing operation, which was leased back to the Company's independent subsidiary. Refer to Note 6, Standard Bearer, for additional information on the purchase of the real estate property. The new operations added operational skilled nursing beds and operational senior living units to be operated by the Company's independent subsidiaries. Additionally, the Company added stand-alone senior living facility to its real estate portfolio, which is leased to a third-party operator.
2024 Expansions
During the three months ended March 31, 2024, the Company expanded its operations and real estate portfolio through a combination of long-term leases and a real estate purchase, with the addition of stand-alone skilled nursing operations. Of these additions, Standard Bearer acquired the real estate of of the stand-alone skilled nursing operation, which was leased back to the Company's independent subsidiary. Refer to Note 6, Standard Bearer, for additional information on the purchase of real estate property. These new operations added a total of operational skilled nursing beds to be operated by the Company's independent subsidiaries. The Company also invested in new ancillary services that are complementary to its existing businesses.
11
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



 $ Building and improvements  Equipment, furniture, and fixtures  Assembled occupancy  Goodwill  Other indefinite-lived intangible assets  TOTAL ACQUISITIONS$ $   ))   )) 
(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 $ of service revenue and $ of rental revenue for the three months ended March 31, 2024, both of which include intercompany revenue that is eliminated in "Elimination of intercompany revenue".
(3) Elimination of intercompany revenue includes the elimination intercompany rental revenue of $ and intercompany service revenue of $ for the three months ended March 31, 2024.
(4) Other segment items includes cost of services and rent expense for the skilled services segment and cost of services, rent expense and general and administrative expenses for the Standard Bearer segment. Additionally, there are intercompany expenses of $ during the three months ended March 31, 2024, 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 $ during the three months ended March 31, 2024, which is eliminated in consolidation.
9. 
 $ Buildings and improvements  Leasehold improvements  Equipment  Furniture and fixtures  Construction in progress   $ $ Less: accumulated depreciation()()PROPERTY AND EQUIPMENT, NET$ $ 

within the Company's consolidated statement of income as cost of services during the three months ended March 31, 2024. The Company determined there was impairment during the three months ended March 31, 2025.
10. 

$ $()$ $ $()$ Facility trade name ()  () Customer relationships ()  () TOTAL $ $()$ $ $()$ 

During the three months ended March 31, 2025 and 2024, amortization expense was $ and $, respectively, of which $ and $ was related to the amortization of right-of-use assets, respectively.

15
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


 2026  2027 2028 2029 2030 Thereafter  $  $   $ 
12. 

 $ Refunds payable  Resident advances  Cash held in trust for patients  Dividends payable  Property taxes  Income tax payable  Other  OTHER ACCRUED LIABILITIES$ $ 

16
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



13.
and $ during the three months ended March 31, 2025 and 2024, respectively, or % of earnings before income taxes for the three months ended March 31, 2025, compared to % for the three months ended March 31, 2024. 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 2025, the statutes of limitations will lapse on the Company's 2021 federal tax year and certain 2020 and 2021 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, 2025 and 2024.
14.
 $ Less: current maturities()()Less: debt issuance costs, net()()LONG-TERM DEBT LESS CURRENT MATURITIES$ $ 
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 $ 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 % to % per annum or SOFR plus a margin ranging from % to % 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 % to % 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 :1.00; provided that if the aggregate consideration for approved acquisitions in a period is greater than $, then the ratio can be increased at the election of the Company with notice to the administrative agent to :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 :1.00). As of March 31, 2025, there was outstanding debt under the Credit Facility. The Company was in compliance with all loan covenants as of March 31, 2025.

17
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


subsidiaries that have mortgage loans insured with HUD in the aggregate amount of $, which subjects these subsidiaries to HUD oversight and periodic inspections. The mortgage loans bear effective interest rates in a range of % to %, including fixed interest rates in a range of % to % 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 % and is reduced by % in the fourth year of the loan and reduced by % per year for years five through ten of the loan. There is prepayment penalty after year ten. The terms for all the mortgage loans are to years.

In addition to the HUD mortgage loans above, the Company has a promissory note of $ that bears a fixed interest rate of % per annum and has a term of 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, 2025, the Company had approximately $ 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, 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.

15.
stock incentive plan, the 2022 Omnibus Incentive Plan (the 2022 Plan), pursuant to which grants of the Company's securities may currently be made. Including the shares rolled over from the 2017 Omnibus Incentive Plan, the 2022 Plan provides for the issuance of shares of common stock. The number of shares available to be issued under the 2022 Plan will be reduced by (i) share for each share that relates to an option or stock appreciation right award and (ii) shares for each share which relates to an award other than a stock option or stock appreciation right award (a full-value award). Non-employee director options, to the extent granted, will vest and become exercisable in equal annual installments, or the length of the term if less than , on the completion of each year of service measured from the grant date. All other options generally vest over at % per year on the anniversary of the grant date. Options expire from the date of grant. At March 31, 2025, the total number of shares available for issuance under the 2022 Plan was .
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
18
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


$ $ 2024$ $ 
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, 2025 and 2024 and therefore, the intrinsic value was $ at the date of grant.
 $  $ Granted  Forfeited() Exercised() March 31, 2025 $  $ 
 $ Vested  Expected to vest  
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, 2025 and 2024 was $ and $, respectively. The total intrinsic value of options exercised during the three months ended March 31, 2025 and 2024 was $ and $, respectively.
Restricted Stock Awards
The Company granted and restricted stock awards during the three months ended March 31, 2025 and 2024, respectively. All awards were granted at an issue price of $ and generally vest over . The fair value per share of restricted awards granted during the three months ended March 31, 2025 and 2024 ranged from $ to $ and $ to $, respectively. The fair value per share includes quarterly stock awards to non-employee directors. Included in the restricted stock award grants are $ and $ of annual bonuses that were settled in vested restricted stock awards during the three months ended March 31, 2025 and 2024, respectively.
 $ Granted  Vested() Forfeited() 
Nonvested at March 31, 2025
 $ 
19
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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 $ based on the market price on the grant date.
Stock-based compensation expense
 $      $ 

In future periods, the Company expects to recognize approximately $ and $ in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of March 31, 2025. Future stock-based compensation expense will be recognized over weighted average years for both unvested options and restricted stock awards. There were unvested and outstanding options as of March 31, 2025, of which options are expected to vest. The weighted average contractual life for options outstanding, vested and expected to vest as of March 31, 2025 was  years.

16.
independent skilled nursing and senior living facilities used in the Company’s operations under “triple-net” master lease agreements (collectively, the Master Leases), which range in terms from to years. At the Company’s option, the Master Leases may be extended for or renewal terms beyond the initial term, on the same terms and conditions. The extension of the term of any of the Master Leases is subject to the following conditions: (1) no event of default under any of the Master Leases having occurred and continuing; and (2) the tenants providing timely notice of their intent to renew. The term of the Master Leases is subject to termination prior to the expiration of the current term upon default by the tenants in their obligations, if not cured within any applicable cure periods set forth in the Master Leases. 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 the Master Lease. During the three months ended March 31, 2025, the Company exercised purchase options under an existing lease arrangement to acquire the real estate of facilities from CareTrust for $.
The Company does not have the ability to terminate the obligations under a Master Lease prior to its expiration without CareTrust’s consent. If a Master Lease is terminated prior to its expiration other than with CareTrust’s consent, the Company may be liable for damages and incur charges such as continued payment of rent through the end of the lease term as well as maintenance and repair costs for the leased property.
The rent structure under the 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 ) or (2) %. In addition to rent, the Company is required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (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. The terms and conditions of the stand-alone lease are substantially the same as those for the master leases described above. Total rent expense under the Master Leases was approximately $ and $ for the three months ended March 31, 2025 and 2024, respectively.
Among other things, under the Master Leases, the Company must maintain compliance with specified financial covenants measured on a quarterly basis, including a portfolio coverage ratio and a minimum rent coverage ratio. The Master Leases also include certain reporting, legal and authorization requirements. The Company is in compliance with requirements of the Master Leases as of March 31, 2025.
20
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


to years. In addition, the Company leases certain of its equipment under non-cancelable operating leases with initial terms ranging from three to . Most of these leases contain renewal options, certain of which involve rent increases.
The Company's independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases with CareTrust, are operated under separate master lease arrangements. During the three months ended March 31, 2025, the Company entered into new master lease arrangement to add stand-alone skilled nursing facilities operated by the Company's independent subsidiaries with an initial term of years. The new master lease arrangement increased the lease liabilities and right-of-use assets by $ to reflect the new lease obligations. 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 a 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.
 $        $ 
(1)Rent- cost of services includes deferred rent expense adjustments of $ and $ for the three months ended March 31, 2025 and 2024, respectively. Additionally, rent- cost of services includes other variable lease costs such as CPI increases and short-term leases of $ and $ for the three months ended March 31, 2025 and 2024, respectively.
(2)Cost of services includes variable lease costs, which consists of property taxes and insurance.
(3)Depreciation and amortization is related to the amortization of favorable and direct lease costs.

 2026 2027 2028 2029 2030 Thereafter TOTAL LEASE PAYMENTS$ Less: present value adjustment ()PRESENT VALUE OF TOTAL LEASE LIABILITIES$ Less: current lease liabilities()LONG-TERM OPERATING LEASE LIABILITIES$ 
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, 2025, the weighted average remaining lease term is  years and the weighted average discount rate used to determine the operating lease liabilities is %.
Subsequent to March 31, 2025, the Company expanded its operations through a new master lease with the addition of stand-alone skilled nursing operation and stand-alone senior living operation. The aggregate impact to the carrying value of lease liabilities and right-of-use assets related to the long-term leases is estimated to be approximately $.

21
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


senior living operations are operated by The Pennant Group, Inc. (Pennant). All of these properties are triple-net leases, whereby the respective tenants are responsible for all costs at the properties including: (1) all impositions and taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (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. The initial terms range from to years.  $ 
Other third-party(2)
  TOTAL$ $ (1) Pennant rental income includes variable rent such as property taxes of $ and $ during the three months ended March 31, 2025 and 2024.
and $ for the three months ended March 31, 2025 and 2024.
 2026 2027 2028 2029 2030 Thereafter TOTAL$ 
lease agreements with a third-party operator for stand-alone skilled nursing operation and stand-alone senior living operation with an initial lease term of years, respectively.
17.

% 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 certain highly compensated employees who are otherwise ineligible to participate in the Company's 401(k) plan, may defer the receipt of a portion of their base compensation and, for certain employees, up to % 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. The Company paid for related administrative costs, which were not significant during the three months ended March 31, 2025 and 2024.

As of March 31, 2025 and December 31, 2024, the Company accrued $ and $, 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.
22
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


, which is included in other income (expense), and recorded an offsetting reduction in expense of $, which is allocated between cost of services and general and administrative expenses. For the three months ended March 31, 2024, the Company recorded a gain related to its DCP of $, which is included in other income (expense), and recorded an offsetting expense of $, which is allocated between cost of services and general and administrative expenses.
18.
per claim ($ if an enforceable arbitration agreement applies), subject to an additional one-time deductible of $. For the independent subsidiaries not in California, the self-insured claim is $ per claim ($ if an enforceable arbitration agreement applies), subject to an additional one-time, deductible of $. For all independent subsidiaries, except those located in Colorado, the third-party coverage above these limits is $ per claim, $ per operation, with a $ blanket aggregate limit and an additional state-specific aggregate where required by state law. In Colorado, the third-party coverage above these limits is $ per claim and $ 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.
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 $ 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 $ 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 $ 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 $ 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 $ for each covered person for fiscal year 2025.

23
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


  $ Accrued workers’ compensation liabilities   
Accrued health benefits
   
19.

24
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


and recorded the accrual as of December 31, 2023. Following the finalization of the settlement documents and payment of the settlement funds during the fourth quarter of 2024, the qui tam complaint was dismissed and the matter was resolved.
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), various Program Safeguard Contractors, and Medicaid Integrity Contractor programs (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, 2025 and through the filing date of this report, 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 % and % of its total accounts receivable as of March 31, 2025 and December 31, 2024, respectively. Revenue from reimbursement under the Medicare and Medicaid programs accounted for % and % of the Company's revenue for the three months ended March 31, 2025 and 2024, respectively.
20.
of its common stock under the program for a period of approximately months from March 26, 2025. During the three months ended March 31, 2025, the Company purchased shares of its common stock for $. Subsequent to March 31, 2025, the Company repurchased shares of its common stock for $. This repurchase program expired upon the repurchase of the fully authorized amount under the plan and is no longer in effect.
On May 16, 2024, the Board of Directors previously approved a stock repurchase program pursuant to which the Company could repurchase up to $ of its common stock under the program for a period of approximately months from September 1, 2024. The Company did purchase any shares pursuant to this stock repurchase program before the repurchase program was cancelled on February 21, 2025.
25
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


of its common stock under the program for a period of approximately months from September 1, 2023, which the program terminated by its terms on August 31, 2024. The Company did purchase any shares pursuant to this stock repurchase program.
Under these repurchase programs, 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, 2024 (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.
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.
As used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the words, "Ensign," "Company," “we,” “our” and “us” refer to The Ensign Group, Inc. and its consolidated subsidiaries. All of our affiliated operations, the Service Center, our wholly-owned captive insurance subsidiary and our captive real estate investment trust (REIT) called Standard Bearer Healthcare REIT, Inc. (Standard Bearer) are operated by separate, wholly-owned, independent subsidiaries that have their own management, employees and assets. The use of "Ensign," "Company," “we,” “us,” “our” and similar verbiage in this Quarterly Report on Form 10-Q is not meant to imply that any of our affiliated operations, the Service Center, the captive insurance subsidiary or Standard Bearer are operated by the same entity. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes included the Quarterly Report.
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 Alabama, Alaska, Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oregon, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin. 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, 2025, we offered skilled nursing, long term acute care, senior living and rehabilitative care services through 340 skilled nursing and senior living facilities. Our real estate portfolio includes 140 owned real estate properties, which includes 107 facilities operated and managed by us, 33 operations leased to and operated by third-party operators and the Service Center location. Of the 33 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.
26
Table of Contents
The following table summarizes our independent subsidiaries and operational skilled nursing beds and senior living units by ownership status as of March 31, 2025:
Owned and OperatedLeased (with a Purchase Option)Leased (without a Purchase Option)Total for Facilities Operated
Number of facilities107 8 225 340 
Percentage of total31.5 %2.4 %66.1 %100.0 %
Operational skilled nursing beds10,682 687 23,577 34,946 
Percentage of total30.6 %2.0 %67.4 %100.0 %
Senior living units1,938 142 1,140 3,220 
Percentage of total60.2 %4.4 %35.4 %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 and our captive real estate trust owns and operates our real estate portfolio. 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.
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, 2025, we expanded our operations and real estate portfolio through a combination of long-term leases and real estate purchases, with the addition of 11 stand-alone skilled nursing operations, one stand-alone senior living and one campus operation. Of these additions, Standard Bearer acquired the real estate of seven of these operations, which were leased back to Ensign affiliated entities. These new operations added a total of 1,365 operational skilled nursing beds and 132 operational senior living units to be operated by our affiliated operating subsidiaries.
Subsequent to March 31, 2025, we expanded our operations through a combination of long-term leases and real estate purchases, with the addition of two stand-alone skilled nursing operations and one stand-alone senior living operation. Of these additions, Standard Bearer acquired the real estate of one stand-alone skilled nursing operation, which was leased back to Ensign affiliated entities. This new operation added 241 operational skilled nursing beds and 68 operational senior living units to be operated by our affiliated operating subsidiaries. Additionally, we added one stand-alone senior living facility to our real estate portfolio, which is leased to a third-party operator. For further discussion of our real estate properties and expansions, see Note 6 and 7, Standard Bearer and Operation Expansions in the Notes to the Interim Financial Statements.
Expansion into New States — In the first quarter of 2025, we expanded our operations into the states of Alabama, Alaska and Oregon with the addition of three stand-alone skilled nursing operations and one campus operation. These expansions are part of our strategic vision to further strengthen our growing national presence in both existing and new attractive markets.
Standard Bearer Update — 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. We expect the REIT structure to allow us to better demonstrate the growing value of our owned real estate and provide us with an efficient vehicle for future acquisitions of properties that could be operated by our independent subsidiaries or other third parties. This structure gives us new pathways to growth with transactions we would not have considered in the past.

27
Table of Contents
During the three months ended March 31, 2025, Standard Bearer added $147.8 million of real estate associated with eight stand-alone skilled nursing operations, one stand-alone senior living operation and two campus operations. Four of the acquisitions were related to exercising purchase options from CareTrust REIT, Inc. (CareTrust) lease arrangements, our independent subsidiaries were already operating and managing these locations. The remaining real estate acquisitions were leased back to our independent subsidiaries.
Subsequent to March 31, 2025, Standard Bearer added $24.8 million of real estate associated with two stand-alone skilled nursing operations, where one stand-alone skilled nursing facility was leased back to our independent subsidiaries and the remaining one real estate acquisition was leased to a third-party operator. Our existing relationships with third-party operators within our industry have allowed us to expand our growing REIT structure to operators outside of our organization.
Common Stock Repurchase Program — On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from March 26, 2025. During the three months ended March 31, 2025 and subsequently, we purchased 157 shares of our common stock for $20.0 million.
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, 2025:

Facility CountsBed / Unit Counts
Skilled OperationsSenior Living Communities
Campus Operations(1)
Total Skilled Operational Beds Senior Living Units Total Beds / Units
Texas 79158510,24060410,844
California67—3706,6731976,870
Arizona 3316405,0098915,900
Colorado3151373,3696334,002
Utah
1921222,0711632,234
Washington 161—171,491981,589
Idaho 11—112993211,014
Tennessee11——111,120—1,120
Kansas3—8118282511,079
South Carolina9——91,126—1,126
Nebraska4138496199695
Iowa 6—2853031561
Nevada3——3483—483
Wisconsin3——3182—182
Alaska11—214682228
Alabama1——191—91
Oregon——119850148
297123134034,9463,22038,166
(1) Campuses represent facilities that offer both skilled nursing and senior living services.


28
Table of Contents
The following table provides summary information regarding the location of our owned and operated real estate properties as of March 31, 2025:
Facility CountsBed / Unit Counts
Skilled OperationsSenior Living Communities
Campus Operations(1)
Total Skilled Operational Beds Senior Living Units Total Beds / Units
Texas 2214273,0755743,649
Arizona12—5172,0444942,538
California10—1111,190421,232
Colorado63—9592369961
Utah
8——8764—764
Kansas1—56440167607
South Carolina5——5544—544
Washington 5——5504—504
Idaho 5——5470—470
Nebraska1113171160331
Tennessee3——3300—300
Wisconsin3——3182—182
Alaska11—214682228
Iowa2——2162—162
Oregon——119850148
8461710710,6821,93812,620
(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, 2025:
Owned and Operated by Ensign(1)
Owned and Leased to Third-Party Operators(1)
Service Center
Total Properties(1)
Texas(1)
276—32
Wisconsin322—25
Arizona 171—18
California
112114
Colorado9——9
Utah
8——8
Washington51—6
Kansas6——6
Idaho 5——5
South Carolina5——5
Nebraska3——3
Tennessee3——3
Iowa 2——2
Alaska2——2
Oregon1——1
Nevada—1—1
107331140
(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.

29
Table of Contents
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:
2024
%31.0 %
%49.9 %
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:20252024
Operational beds at end of period34,946 31,169 
Available patient days3,099,677 2,814,719 
Actual patient days2,538,135 2,255,531 
Occupancy percentage (based on operational beds)81.9 %80.1 %
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
202520242025202420252024
Medicaid(1)
$443,411 $382,118 $10,429 $8,045 $453,840 $390,163 
Medicare287,751 265,583 — — 287,751 265,583 
Medicaid-skilled69,551 63,309 — — 69,551 63,309 
Subtotal$800,713 $711,010 $10,429 $8,045 $811,142 $719,055 
Managed care227,217 188,104 — — 227,217 188,104 
Private and other(2)
95,624 70,488 33,057 26,838 128,681 97,326 
TOTAL SERVICE REVENUE $1,123,554 $969,602 $43,486 $34,883 $1,167,040 $1,004,485 
 Three Months Ended March 31,
Skilled Services
All Other (3)
Total Service Revenue
202520242025202420252024
Medicaid(1)
39.5 %39.4 %24.0 %23.1 %38.9 %38.8 %
Medicare25.6 27.4 — — 24.7 26.4 
Medicaid-skilled6.2 6.5 — — 5.9 6.4 
Subtotal71.3 %73.3 %24.0 %23.1 %69.5 %71.6 %
Managed care20.2 19.4 — — 19.5 18.7 
Private and other(2)
8.5 7.3 76.0 76.9 11.0 9.7 
TOTAL SERVICE REVENUE100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
(1) Medicaid payor includes revenue for senior living operations.
(2) Private and other in our "all other" category includes revenue from senior living operations and all revenue generated in our other 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 Stark 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 released the following proposed or final rulemaking, or administrative actions that may have an impact on our independent Skilled Nursing Facilities (SNFs) or Assisted Living Facilities (ALFs):
Biden-Harris Administration's Nursing Home Care Priorities — Prior to the change in Presidential Administration in 2025, the Biden-Harris Administration sought reform around reimbursement, staffing levels, standards of care, increased transparency and public disclosure of ownership, and enhanced civil remedies as a means of enforcement against those facilities that do not satisfy CMS’s standards. These rules are still in effect and enforceable. For example, the SNF PPS FY 2025 Final Rule granted CMS greater sanctioning authority for ongoing or persistent deficiencies in Medicare-participating SNFs. These increased sanctioning authorities will take effect in the 2025 federal fiscal year, which began on October 1, 2024. With the new administration, it currently is unknown whether any of these rules will be reduced in their scope or application, or whether they will be increased in any respects. The individuals appointed to serve as the Secretary of HHS and Director of CMS, respectively, have not yet provided any indication what their priorities of anticipated future actions would be in this area.

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Ownership Transparency Final Rule — CMS' final rule published in November 2023 requires SNFs to publicly disclose certain additional information regarding their ownership and managerial relationships, including the identity of any person or legal entity that: (1) exercises financial, operational, or managerial control over any facility or part of a facility, or provides services to a facility that include its policies and procedures or cash management services; (2) leases or subleases real property to the facility, or owns 5% or more of the real property’s total value; and (3) provides any management or administrative services (or consults regarding the same), or provides accounting or financial services to SNFs. The rule also expands ownership and control interest disclosures to include information about each member of the facilities governing body, individuals or entities serving as officers, directors, members, partners or managing employees, and a comprehensive breakdown of the organizational structure of any additional disclosable party that is not a natural person along with a description of their relationships with the facility. As of November of 2024, all SNFs are required to comply with this rule’s requirements, which industry observers have noted have had adverse effects on some SNFs and their Medicare recertification.
Certain states have adopted laws reflecting their concerns regarding ownership transparency. For example, Iowa adopted laws requiring disclosure of ownership information not previously required for licensure to promote transparency in 2023. Additionally, in March 2024, the California Department of Health Care Access and Information of the California Health and Human Services Agency issued its notice of approval of regulatory action establishing policies and procedures that implement financial and ownership transparency requirements for California-licensed SNFs that are required by California law passed in 2021.

Federal Legislation — The Home and Community-Based Services (HCBS) Access Act (Access Act) was introduced in 2023 to expand access to and resources available for HCBS. The Access Act ensures that Medicaid funding is made available to individuals who provide direct home- and community-based care to adults over the age of 60 or people who have disabilities. This bill also provides financial resources for the training of these direct care providers, who are intended to provide services to the elderly or disabled that range from advocacy and community integration to transportation and daily assistance tasks ranging from bathing and laundry to meal preparation and housekeeping. No further action was taken on the Access Act during the 118th Congress and that congressional session ended without the Access Act being passed into law. Comparable legislation has not yet been introduced in the 119th Congress, which began in January of 2025.

In addition, the HCBS Relief Act introduced in 2023, provides additional funds to states to stabilize their HCBS service delivery networks, recruit and retain HCBS direct care workers, and meet long-term service and support needs of people eligible for Medicaid home and community-based services. To qualify for the enhanced rate, a state must commit to initiatives aimed at improving the provision of services. No further action was taken on the HCBS Relief Act during the 118th Congress and that congressional session ended without the HCBS Relief Act being passed into law. Comparable legislation has not yet been introduced in the 119th Congress.

The Improving Care and Access to Nurses Act (I CAN Act) was introduced to the Senate on February 13, 2025. The I CAN Act expands the role of nurse practitioners (NPs) in SNFs and nursing homes by allowing them to certify, oversee, and supervise care under Medicare and Medicaid without requiring physician oversight, subject to state law. If enacted it would grant NPs the authority to certify patient admissions, manage care plans, and provide supervision in SNFs and intermediate care facilities. These proposed changes could potentially reduce reliance on physicians, streamline patient transitions from hospitals to long-term care, and increase access to care particularly in rural and underserved areas.

Under the direction of the Trump Administration, Congress is considering major cuts to federal spending on Medicaid. One of the options under consideration is to limit the amount of federal Medicaid funding they receive by levying taxes on providers and thereby increasing their reimbursement rates. Restricting these “provider taxes” would create financing gaps for states which could result in higher state taxes, reductions in Medicaid eligibility, lower provider payment rates, and fewer covered benefits.
State Legislation — Many states in which our independent subsidiaries operate have introduced or passed legislation that would create or change laws and regulations related to our business and industry.
In the past, California had discussed issuing proposed regulations on direct care spending requirements that may have affected our business and SNFs operating within that state. These proposals have included requirements for healthcare facilities certified by CMS, including SNFs, to report all annual revenues to the State of California and certify that a stated percentage of all revenues should be used for direct patient-related services, including staffing and operational costs.

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California has also signed into law a bill that impacts the minimum wages of healthcare workers. Effective October 16, 2024, the law raised the minimum wage for California healthcare employees and set a new wage threshold for those who are considered exempt healthcare employees. The bill only becomes effective for SNFs if a direct care minimum spending requirement bill is also passed. While the existing requirement bill has not seen any traction, we anticipate a minimum spending bill could be proposed in the future.
On April 24, 2024, the California Department of Health Care Access and Information (HCAI) announced that the Office of Health Care Affordability’s Board approved a statewide healthcare spending target of 3.0%, which represents a long-term reduction of current levels of statewide healthcare spending. The spending target will be phased in over time, initially starting at 3.5% for 2025 and 2026, the target will be lowered to 3.2% for 2027 and 2028 before ultimately reaching 3% for 2029 and beyond.
CMS Minimum Staffing Standards Final Rule — In April 2024, CMS issued its final rule establishing minimum staffing standards for skilled nursing facilities (Staffing Rule). The Staffing Rule contains three primary staffing requirements and provides for a staggered and phase implementation over the next several years following the Staffing Rule’s publication. In addition, the Staffing Rule finalized the hardship exemption for the HPRD requirements and also enhanced transparency for the use of Medicaid payments for facility services, referenced as Medicaid Institutional Payment Transparency Reporting provisions (MIPTR).

The Staffing Rule has been met with further opposition and proposed legislation to halt its implementation. On May 23, 2024, the American Health Care Association (AHCA) filed a lawsuit in the Northern District of Texas against HHS and CMS, alleging that the Staffing Rule exceeds the scope of CMS’s statutory authority and violates the Administrative Procedure Act. The State of Texas brought suit and was granted consolidation of its lawsuit with AHCA's in the same venue arguing the rule is “arbitrary and capricious” and in violation of the Administrative Procedure Act. Subsequently, over 20 additional states have filed similar suits in opposition to the rule, as well as industry groups including Leading Age and the South Dakota Association of Healthcare Organizations. On January 16, 2025, the United States District Court for the Northern District of Iowa rejected a motion for preliminary injunction filed by the plaintiff states and LeadingAge affiliates. Litigation over the Staffing Rule remains ongoing and no final decision has yet been entered.

On April 7, 2025, the U.S. District Court for the Northern District of Texas issued a ruling to vacate the Biden Administration’s federal staffing mandate for nursing homes that was to be phased in starting in 2026. The court found that CMS lacks authority to issue a regulation that replaces Congress’s preferred minimum staffing hours with its own. While the Trump Administration can appeal the ruling, as of April 28, 2025, there has been no indication of an intent to do so.
Tariffs — On April 2, 2025, President Trump signed the executive order to impose a variety of tariffs to the global trading partners of the United States. These tariffs have the potential to increase costs on goods that are imported into the United States. As it pertains to our independent subsidiaries, tariffs on medical supplies may lead to higher costs to providers and the federal government through the Medicare and Medicaid programs and may impact the formulas used to calculate federal reimbursements.
Medicare
Medicare presently accounts for approximately 25.6% 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 SNF PPS Rule included a case mix model called PDPM that focuses on the patient’s condition (clinically relevant factors) and resulting care needs to determine Medicare reimbursement. PDPM utilizes clinically relevant factors for determining Medicare payment by using diagnosis codes and other patient characteristics as the basis for patient classification. PDPM makes effective use of five case-mix adjusted payment components: physician therapy, occupational therapy, speech language pathology, nursing and social services and non-therapy ancillary services. It also uses a sixth non-case mix component to cover utilization of SNFs' resources that do not vary depending on resident characteristics. PDPM is intended to achieve a more value-based, unified post-acute care payment system. For example, PDPM adjusts Medicare payments based on each aspect of a resident’s care. Under the SNF PPS PDPM system, the payment to SNFs and nursing homes is based heavily on the patient’s condition rather than the specific services provided by each SNF.

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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 revised the calculation of its five-star ratings for the Nursing Home Compare website. Under this methodology, points are assigned to a SNF based on its performance across six measures: (1) case-mix adjusted total nurse staffing levels (including registered nurses, licensed practical nurses, and nursing aides), measured by hours per resident per day; (2) case-mix adjusted registered nurse staffing levels, measured by hours per resident per day; (3) case-mix adjusted total nurse staffing levels (including registered nurses, licensed practical nurses, and nursing aides), measured by hours per resident day on the weekend; (4) total nurse turnover, defined as the percentage of nursing staff that left the nursing home over a 12-month period; (5) registered nurse turnover, defined as the percentage of registered nursing staff that left the nursing home over a 12-month period; and (6) administrator turnover, defined as the percentage of administrators that left the nursing home over a 12-month period. These six measures will be measured on a quarterly basis.
These six new measures were included in the five-star rating starting in October 2022. In addition, CMS also implemented a planned increase to the quality measure reporting thresholds, increasing each threshold by one-half of the average improvement of quality measure scores since CMS last set quality measure thresholds. Going forward, CMS plans to implement similar rating threshold increases every six months.
CMS has continued to refine the QRP including various measurements such as the adoption of a process measure for influenza vaccination coverage among healthcare personnel within SNFs and a Discharge Function Score (DC Function) measure, which determines the functional condition of residents by examining the proportion of SNF residents who achieve or surpass a projected discharge functionality score. The assessment includes consideration of mobility and self-care, utilizing data from the Minimum Data Set (MDS). The DC Function will replace the current process and is scheduled to go into effect for the FY 2025 SNF QRP. The SNF PPS FY 2024 Final Rule also modified the SNF QRP’s Healthcare Professional (HCP) Covid Vaccine Measure. The measure will track the proportion of healthcare staff vaccinated for COVID-19 and have kept their vaccination status current per the CDC recommendations. The SNF PPS FY 2024 Final Rule also removed the Application of Functional Assessment/Care Plan measures from the SNF QRP.
Under the SNF PPS FY 2024 Final Rule, CMS will adopt two measures for the SNF QRP starting in FY 2026. First, CMS will raise 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 will adopt the Patient/Resident COVID-19 Vaccine metric. This metric highlights the number of patient stays in which SNF patients received the COVID-19 vaccine.
CMS’s SNF PPS FY 2025 Final Rule adopts several updates to the SNF QRP aimed at enhancing the integration of social determinants of health (SDOH) into patient assessments and ensuring the accuracy of reported data. Starting in fiscal year 2027, CMS will introduce four new SDOH items related to living situation, food security, and utility access, and modify an existing item on transportation availability in the MDS. Additionally, CMS requires that SNFs participating in the SNF QRP undergo a data validation process similar to that already implemented in the SNF Value-Based Purchasing (VBP) Program. Also beginning in fiscal year 2027, SNFs participating in the SNF QRP program must participate in a validation program similar to that used for SNFs participating in the SNF VBP Program.
Medicare Annual Payment Rule — CMS is required to calculate an annual Medicare market-basket update to the payment rates. For fiscal year 2026, CMS proposes updating SNF PPS rate by 2.8%, which will start on October 1, 2025 and will run through September 30, 2026. The net increase is based on a 3.0% market basket adjustment to account for inflation, plus a 0.6% forecast error adjustment and a negative 0.8% productivity adjustment. This increase does not include the SNF VBP reductions for certain SNFs subject to the net reduction in payments under the SNF VBP. In addition, CMS is proposing updates to the SNF VBP and SNF Quality Reporting Program (QRP) to simplify methodology and remove certain patient assessment data elements.

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

The SNF PPS FY 2025 Final Rule also includes significant enhancements to CMS’s enforcement capabilities within nursing homes, aiming to reinforce the safety and quality of care. The rule broadens CMS’s ability to use financial penalties to ensure sustained remediation of health and safety infractions, thereby motivating facilities to quickly comply with CMS regulations. The rule eliminates the restrictions of per instance (PI) for isolated violations or per day (PD) for ongoing non-compliance restrictions, allowing for more flexible imposition of both PD and PI penalties, which would not exceed statutory daily limits. This change is intended to provide CMS with enhanced tools to address violations more effectively and reflect the severity of the impact on residents’ health and safety. Additionally, the SNF PPS FY 2025 includes updates to the QRP to better account for social determinants of health, adding items to be reported regarding these social determinants of health—living situation, food, and utilities—in the minimum data set each SNF is required to report to CMS. The SNF PPS FY 2025 also contains an update to the SNF Value-Based Purchasing (VBP) Program, including how its measurements are retained or removed from use in evaluating quality of care, updates to technical measures so that measures can be updated using a sub-regulatory process, and administrative policies for updating and correcting data CMS relies on in calculating its measurements.

2025 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. The 2025 Home Health PPS Final Rule requires long-term care facilities, including SNFs, to make at least weekly reports to CMS regarding respiratory illnesses, including facility census, resident vaccination status for specified respiratory illnesses, confirmed resident cases and residents hospitalized from such illnesses.

Final Rule Fiscal Year 2024 SNF PPS — The SNF PPS FY 2024 Final Rule, which was effective October 1, 2023, updated the Medicare payment rates and modified the SNF QRP and the SNF VBP Program. The SNF PPS FY 2024 Final Rule finalized the rates to be paid in fiscal year 2024, which started on October 1, 2023 and ran through September 30, 2024. The net effect of these changes was an overall 4.0% increase in payments to SNFs in FY 2024. The increase included a 6.4% net market basket update to the payment rates of 3.0%, plus a 3.6% market basket forecast error adjustment, less a 0.2% productivity adjustment, as well as a negative 2.3% adjustment in the FY 2024 SNF PPS rates due to the second phase of the Patient Driven Payment Model (PDPM) parity adjustment recalibration. In addition, this final rule also updates the SNF QRP for FY 2024 and future years, including the adoption of two new quality reporting measures, modification of one measure and removal of three measures resulting in public reporting of four QRP measures. Additionally, the SNF PPS FY 2024 Final Rule made changes to the SNF VBP Program, specifically adopting four new measures: the nursing staff turnover measure, the discharge function score measure, the long stay hospitalization measure per 1,000 resident days and the percent of residents experiencing one or more falls with a major injury (long stay); the existing SNF 30-day all-cause readmission measure (SNFRM) is replaced with the SNF within stay potentially preventable readmissions measure beginning in FY 2028.

SNF PPS FY 2024 Final Rule adopted the Nursing Staff Turnover (NST) measure for the SNF VBP program beginning with the FY 2026 program year. This is a structural measure that has been collected and publicly reported on Care Compare, and the measure assesses the stability of the staffing within a SNF using nursing staff turnover. The NST measure uses facility-reported, electronic data from CMS’ Payroll-Based Journal (PBJ) system to calculate annual turnover rates for nursing staff, including RNs, LPNs, and nurse assistants. Facilities began reporting this measure in FY 2024, with payment effects beginning in FY 2026.

The NST measure looks at six consecutive quarters of data. It starts with a baseline quarter and the first two quarters of the performance period to identify eligible employees. Then, uses the next four quarters to find the number of employment cycles that ended in turnover. Finally, the data from the sixth quarter is validated to identify gaps in days worked that began in the last 60 days of the fifth quarter used for the measure. The measure score is then calculated by comparing the total number of eligible employees with 60-day gaps in working during the specified periods. After submission, CMS may audit the data and if discrepancies are found, the consequences may include penalties, decreased ratings and suppression of metrics for the trailing 6 quarters.

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Sequestration of Medicare Rates —The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called sequestration. Medicare FFS claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments through at least 2023, unless Congress takes further action. Under the Consolidated Appropriations Act of 2023 (CAA 2023), a further 4.0% cut to Medicare spending that would have been required under the Statutory Pay-As-You-Go Act of 2010 (PAYGO) was waived for fiscal years 2023 and 2024. Instead, the CAA 2023 deferred any further Medicare sequestration under PAYGO until fiscal year 2025. The CAA 2023 also offset planned Medicare sequestrations that would have been as high as 4.0% and instead maintained fee schedule cuts of approximately 2.0%. Absent a further act by Congress, such as a consolidated appropriations act for 2025 or other bill addressing spending in fiscal year 2025 (including retroactively), the sequestration of Medicare FFS claims is expected to take effect in fiscal year 2025. On October 29, 2024, the Medicare Patient Access and Stabilization Act of 2024 (MPASA) was introduced in the House of Representatives, seeking to increase the amount paid to physicians under Medicare by 4.73%. MPASA was referred to the House Ways and Means Committee and House Committee on Energy and Commerce on October 29, 2024, and referred to the Subcommittee on Health on December 17, 2024, with no further action taken on the bill, which did not pass into law before the end of the 118th Congress in December of 2024.
Skilled Nursing Facility Value-Based Purchasing (SNF-VBP) Program — The SNF-VBP Program rewards SNFs with incentive payments based on the quality of care they provide to Medicare beneficiaries, as measured by a hospital readmissions measure. CMS annually adjusts its payment rules for SNFs using the SNF-VBP Program. The program also introduced quality measures to assess how health information is shared and adopted several standardized patient assessment data elements that assess factors such as cognitive function and mental status, special services and social determinants of health. CMS uses regulations to specify how it measures the performance for SNFs as well as the data that SNFs are to report to CMS. The deadlines for baseline period quality measure quarterly reporting and performance periods and standards began in the 2023 program year. The final rule for the fiscal year 2023 SNF PPS also provided for SNF-VBP program expansion beyond the use of its single, all-cause hospital readmission measure to determine payment, with the inclusion of measures in fiscal year 2026 for SNF healthcare associated infections requiring hospitalization (SNF HAI) and total nursing hours per resident day measures and in fiscal year 2027, the discharge to community post-acute care measure for SNFs, which assess the rate of successful discharges to the community from a SNF setting.

The SNF PPS FY 2024 Final Rule elected to replace the SNFRM measure with the SNF within-stay (WS) potentially preventable readmission (PPR) measure beginning in the FY 2028 program year. The PPR measure assesses the risk-standardized rate of unplanned and potentially avoidable readmissions during SNF stays for Medicare fee-for-service beneficiaries. The new SNF WS PPR measure refines the original Skilled Nursing Facility 30-Day Potentially Preventable Readmission (SNFPPR) measure, which followed the requirements of the Protecting Access to Medicare Act (PAMA) of 2014. The refinement in the SNF WS PPR measure shifts the observation window from a fixed 30-day post-hospital discharge to the duration of the SNF stay. Moreover, the time gap allowed between the prior inpatient discharge and the SNF admission has been extended from one day to 30 days. These changes, based on feedback from expert panels and a 2015 partnership, better align the measure with the IMPACT Act's provisions and enhance the reliability of tracking preventable readmissions. Additionally, the SNF WS PPR measure's calculations use two years of Medicare claims data to generate a provider-specific risk-standardized readmission rate.

The SNF PPS FY 2025 Final Rule adopted several operational and administrative updates to the SNF VBP Program. The SNF rule adopted a policy to select, retain and remove measurements to ensure the VBP Program’s evaluation metrics remain relevant and effective for assessing care quality, as well as policies for updating technical measures and policies for reviewing and correcting data CMS relies upon to calculate its measures. The rule allows CMS to update the case-mix methodology for the Total Nurse Staffing measure, and its policies to allow the review and revise measures, as well as review and correct data, allow SNFs to review and correct Payroll-Based Journal (PBJ) data from fiscal year 2026 and MDS data from fiscal year 2027, allowing CMS to fashion more accurate measures based on updated data.
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.


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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 $2,330 for CY 2024 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.
Through the end of CY 2024, certain of our Part B services provided through telehealth would qualify for Medicare reimbursement based on flexibility first provided under the Emergency Waivers, which added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF. During the Public Health Emergency (PHE), CMS added certain PT and OT services to the list of Medicare-covered telehealth services on a temporary basis, some of which were made permanent for use and new codes were added for PT, OT, or SLP telehealth services—including some “sometimes therapy” codes that were not subject to MPPR. The CAA 2023 extended certain, but not all, telehealth flexibilities until December 31, 2024, allowing certain telehealth flexibilities to continue after the PHE's expiration. The American Relief Act, 2025 extended some but not all telehealth flexibilities for an additional 3 months through March 31, 2025. On March 15, 2025, the President signed into law the Full-Year Continuing Appropriations and Extensions Act, 2025 that Congress passed on March 14, 2025, which extended these pandemic-era telehealth waivers for Medicare beneficiaries through September 30, 2025.
Under the Calendar Year (CY) 2025 Physician Fee Schedule (PFS) Final Rule (2025 PFS Final Rule), the 2.93% increase to the CY 2024 PFS Conversion Factor (CF) expired and CMS seeks to impose an estimated 0.05% adjustment based on changes in work relative value units (RVUs) for certain services. As a result, the 2025 PFS Final Rule implements a reimbursement reduction of 2.83%, with a CF of $32.35, which is a reduction from the CY 2024 CF of $33.29. The 2025 PFS Final Rule adopts a 3.6% increase to the threshold for coding modifier requirements for PT and SLP combined, totaling $2,410 for CY 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 CY 2027.
The 2025 PFS Final Rule also adopts a regulatory change that allows physical therapy assistants and occupational therapy assistants to be generally supervised by physical therapists and occupational therapists, respectively, in private practice, non-institutional settings, allowing greater flexibility in billing for those assistants’ services. Additionally, the 2025 PFS Final Rule excepts a therapist-established initial plan of care (POC) for PT, OT, or SLT services from requiring a physician or non-physician provider’s (NPP’s) signature, provided that (1) the patient’s physician or NPP referred the patient to the therapist and (2) the therapist has evidence that the POC was transmitted to the patient’s physician or NPP within 30 days of the patient’s initial evaluation. This flexibility applies only to the initial certification.
Finally, the 2025 PFS Final Rule reduces COVID-19 PHE-era telehealth flexibilities beginning on January 1, 2025, which would have taken effect without the above described acts of Congress. Under this final rule, absent the subsequent Congressional acts, certain restrictions on telehealth that existed prior to the COVID-19 PHE will go back into effect: most geographic and site-of-service restrictions to telehealth will return, while physicians can still provide telehealth from home, and can provide audio-only telehealth communication in specific circumstances where the patient is unable to use video technology. CMS is also establishing new coding and payment for caregiver training services, including training services provided through eligible telehealth means.
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On October 29, 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 no further action has been taken on this bill. On March 9, 2024, President Biden signed the Consolidated Appropriations Act, 2024, which included a 2.93% update to the CY 2024 PFS CF for dates of service March 9, 2024 through December 31, 2024. This replaced the 1.25% update provided by the Consolidated Appropriations Act, 2023.
The 2024 PFS Final Rule was finalized in November 2023, which changed Medicare payments under the PFS and other Medicare Part B components. The CY 2024 PFS Final Rule contained a conversion factor of $32.74, which was a decrease of $1.15 from the CY 2023 PFS conversion factor of $33.89. This CY 2024 conversion factor was 3.4% lower than the CY 2023 conversion factor. The billing period started on January 1, 2024 and ran through December 31, 2024.
The 2024 PFS Final Rule made payments when physicians and NPPs, involve caregivers in implementing an individualized plan of treatment or therapy. These provisions incentivize the training of caregivers and provide additional funds to offset the costs of training these caregivers. For PT and SLP combined, the threshold for coding modifier requirements increases to $2,330 for CY 2024 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.

The 2024 PFS Final Rule allowed for general supervision of therapy assistants by PTs and OTs for remote therapeutic monitoring (RTM) services. This change may affect the rate of reimbursement for PT and OT services in the future. Additionally, the 2024 PFS Final Rule added certain health and well-being coaching services that Medicare reimbursed on a temporary basis for 2024. The final rule also added risk assessments for social determinants of health to the list of telehealth services Medicare would reimburse.
Programs of All-Inclusive Care for the Elderly
The requirements under the Programs of All-Inclusive Care for the Elderly (PACE) provide greater operational flexibility and update information under the Medicare and Medicaid programs, including leniency in compliance with program requirements during and after a 3-year trial period and relieving restrictions placed on the team that assesses and provides for the needs of each PACE participant. Further, non-physician primary care providers can provide certain services in place of primary care physicians. The final rule, which went into effect on April 3, 2023, requires the collection of data by Medicare Advantage organizations and their service providers and the submission of data to CMS for risk adjustment data validation (RADV) audits. The purpose of these RADV audits is to maintain the accuracy of risk-adjusted payments made to Medicare Advantage organizations.
In 2024, CMS issued a new prescription drug event (PDE) reporting requirements for PACE organizations to receive manufacturer discounts for drugs provided through Medicare Part D as provided for in the Inflation Reduction Act of 2022 (IRA). The additional PDE information must be submitted beginning January 1, 2025. In June of 2024, CMS also updated its statement of rights for PACE participants.
Decisions Regarding Skilled Nursing Facility Payment
Reimbursement rates and rules are subject to frequent change that historically, have had a significant effect on our revenue. The federal government and state governments continue to focus on efforts to curb spending on healthcare programs such as Medicare and Medicaid. We are not able to predict the outcome of the legislative process. We also cannot predict the extent to which proposals will be adopted or, if adopted and implemented, what effect, if any, such proposals and existing new legislation will have on us. Efforts to impose reduced allowances, greater discounts and more stringent cost controls by government and other payors are expected to continue and could adversely affect our business, financial condition and results of operations.
These include statutory and regulatory changes, rate adjustments (including retroactive adjustments), administrative or executive orders and government funding restrictions influenced by budgetary or political pressures, may materially adversely affect the rates at which Medicare reimburses us for our services. Implementation of these and other types of measures has in the past, and could in the future, result in substantial reductions in our revenue and operating margins. For a discussion of historic adjustments and recent changes to the Medicare program and other reimbursement rates, see Part II, Item 1A Risk Factors under the headings Risks Related to Our Business and Industry.

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Patient Protection and Affordable Care Act
Various healthcare reform provisions became law upon enactment of the Patient Protection and Affordable Care Act (ACA). The reforms contained in the ACA have affected our independent subsidiaries in some manner and are directed in large part at increased quality and cost reductions. Several of the reforms are very significant and could ultimately change the nature of our services, the methods of payment for our services and the underlying regulatory environment.
The IRA, which continued and expanded certain provisions of the ACA, extended the premium subsidies paid by the federal government, until the end of 2024, resulting in subsidies being available to offset or reduce the costs of private health insurance policies for qualifying individuals. This may aid older patients in obtaining or keeping their health insurance in order to pay for long-term care services. The CAA 2023 revised the funds available to fund Medicare in 2023 and deferred the PAYGO sequestration of Medicare expenses.
The changes in the Presidential Administration may significantly alter the current health care regulatory framework, payment activity, and impact our business and the health care industry, including any repeals, curtailments, extensions or expansions of certain ACA provisions, included, but not limited to recent rulemaking activity regarding ACA Section 1557's anti-discrimination provisions. We continually monitor these developments so we can respond to the changing regulatory environment impacting our business.
Requirements of Participation
CMS has requirements that providers, including SNFs, must meet in order to participate in the Medicare and Medicaid Programs. Some of these requirements can be burdensome and costly. One such requirement of participation in the Medicare and Medicaid programs involves limitations around the use of pre-dispute, binding arbitration agreements by SNFs. CMS has issued guidance and direction around arbitration that must be satisfied for any agreement to be enforceable and which may result in adverse consequences for our business if not followed.
Phase 2 and 3 of the Requirements of Participation focuses on: (1) resident abuse and neglect; (2) admission, transfer and discharge; (3) mental health and substance abuse disorders; (4) staffing sufficiency; (5) residents’ rights; (6) potential inaccurate diagnoses or assessments; (7) prescription and use of pharmaceuticals; (8) infection prevention and control; (9) arbitration of disputes between facilities and residents; (10) psychosocial outcomes and related severity; and (11) the timeliness and completion of state investigations.
In 2022, CMS updated the Medicare Requirements of Participation for SNFs, to modify the requirements associated with a facility's physical environment to minimize unnecessary renovation expenses and avoid closure of SNFs due to the related expense. CMS "grandfathered" certain facilities and will allow SNFs that were participating in Medicare before July 5, 2016 and that previously used the Fire Safety Evaluation System (FSES) to continue using the 2001 FSES mandatory values when determining compliance with applicable standards. CMS also updated the Requirements of Participation to revise existing qualification requirements for directors of food and nutrition services in SNFs, while "grandfathering" in directors with two or more years of experience and certain minimum training in food safety so they may continue in that role without satisfying further educational requirements.
In 2023, CMS revised the survey resources that CMS and state surveyors use in evaluating SNFs’ compliance with federal Requirements for Participation. This revision incorporated changes to CMS’s focused infection control survey item, which CMS had removed in favor of standard infection control survey measures. These updates provided more information for state surveyors to utilize when evaluating SNFs’ compliance with the Medicare Requirements of Participation, as well as included guidance for facilities on operationalizing compliance with these requirements based on how surveyors would measure and evaluate facility performance.

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Civil and Criminal Fraud and Abuse Laws and Enforcement

Various complex federal and state laws exist which govern a wide array of referrals, relationships and arrangements, and prohibit fraud by healthcare providers. Governmental agencies are devoting increasing attention and resources to such anti-fraud efforts. The Balanced Budget Act of 1997 expanded the penalties for healthcare fraud. Additionally, the government or those acting on its behalf may bring an action under the FCA, alleging that a healthcare provider has defrauded the government by submitting a claim for items or services not rendered as claimed, which may include coding errors, billing for services not provided and submitting false or erroneous cost reports. The FCA clarifies that if an item or service is provided in violation of the AKS, the claim submitted for those items or services is a false claim that may be prosecuted under the FCA as a false claim. Under the qui tam or “whistleblower” provisions of the FCA, a private individual with knowledge of fraud may bring a claim on behalf of the federal government and receive a percentage of the federal government’s recovery. The Biden-Harris Administration had also signaled an increasing focus on nursing home performance and the reimbursement nursing homes receive from federal healthcare payment programs. The change in the presidency following the 2024 presidential elections may result in a change to this focus, in whole or in part. There has not yet been public disclosure of the priorities of the new Presidential Administration, in addition to those of the anticipated new leaders of HHS and CMS, as they relate to SNFs and long-term care facilities. Many states also have a false claim prohibition that mirrors or closely tracks the federal FCA.
Federal law also provides that the OIG has the authority to exclude individuals and entities from federally funded health care programs on a number of grounds, including, but not limited to, certain types of criminal offenses, licensure revocations or suspensions and exclusion from state or other federal healthcare programs. CMS can recover overpayments from health care providers up to six years following the year in which payment was made.
Over the years, the OIG have released the result of audit findings of Medicare overpayments, potentially affecting SNFs. These investigatory actions by OIG demonstrate its increased scrutiny into post-hospital SNF care provided to beneficiaries and may encourage additional oversight or stricter compliance standards. The DOJ has indicated that its healthcare enforcement trends would emphasize opioid prescribing, Medicare Advantage and managed care plan fraud, and COVID-19 related fraud, including under various relief programs available during and in conjunction with the pandemic. In November of 2023, OIG added to its work plan an audit of nursing homes' nurse staffing hours reported in CMS's payroll-based journal, for which OIG expects to issue a report in FY 2025. In addition, the OIG identified the following areas as its "key goals" for oversight: (1) protecting residents from fraud, abuse, neglect, and promoting quality of care; (2) promoting emergency preparedness and emergency response efforts: (3) strengthening frontline oversight; and (4) supporting federal monitoring of nursing homes to mitigate risks to residents.
In 2024, the OIG added to its work plan a series of studies that include: (a) the use of the National Background Check Program (NBCP) in conducting background checks of prospective long-term care provider employees to prepare a report regarding the cost of background checks, number of applicants who received background checks and disqualification of employees during and after NBCP participation; (b) the use of Medicaid supplemental payments for use in satisfying the state’s obligations to pay nursing facilities any amounts due under the state’s nursing facility upper payment limit; and (3) the assessment of the implementation of the Special Focus Facility Program for nursing facilities based on facilities that participated in the program from 2013 through 2022.
Our business model, is based in part on serving higher acuity patients. Over time our overall patient mix has consistently shifted to higher acuity in most facilities we operate. We also use specialized care-delivery software that assists our caregivers in more accurately capturing and recording services in order to, among other things, increase reimbursement to levels appropriate for the care actually delivered. These efforts may place us under greater scrutiny with the OIG, CMS, our fiscal intermediaries, recovery audit contractors and others.
Federal Healthcare Reform
Five-Star Quality Reporting Metrics — The Quality Payment Program (QPP) was created under the Medicare Access and Children's Health Insurance Program (CHIP) Reauthorization Act of 2015. This program was based on the Merit-based Incentive Payment System (MIPS) or the use of Alternative Payment Models (APM), which relied on quality data CMS gathered and evaluated using the Five-Star Quality Rating system, which includes a rating of one to five in various categories. These categories include (but are not limited to) the results of surveys conducted by state inspectors, other health inspection outcomes, staffing, spending, readmissions and stay durations; the data collected and its weighting in determining a rating on a scale of one to five stars is subject to periodic and ongoing revision, re-balancing and adjustment by CMS to reflect market conditions and CMS’s priorities in patient care. Since 2020, CMS’s measurement of the data reported by providers, including SNFs, has become more competitive and resulted in a reduction of four- and five-star rankings available under CMS’s Five-Star Quality Rating system.
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The Five-Star Quality reporting system for nursing homes is displayed on CMS's consumer-based Nursing Home Compare website, along with a consumer alert icon next to nursing homes that have been cited for incidents of abuse, neglect, or exploitation on the Nursing Home Compare website. The Nursing Home Compare website is updated monthly with CMS’s refresh of survey inspection results on that website. Additionally, the Nursing Home Compare website publishes ownership information for Medicare-enrolled nursing facilities based on disclosures made to CMS from 2016 through 2022 due to mergers, acquisitions, or other changes in ownership, to allow for the identification of common ownership of nursing facilities. The Five Star Quality Ratings incorporated staffing data such as staff tenure and SNF weekend staffing beginning with the October 2022 refresh of the Nursing Home Compare website.
In January of 2025, CMS unfroze four of its quality measures that it previously froze with its April 2024 refresh. CMS updated these measures to reflect recent changes in the minimum data set collected from SNFs. First, the measure of percentage of SNF residents who are at or above an expected ability to care for themselves and move around at discharge replaced the measure of percentage of residents who made improvements in function during a short stay. Second, the following measures have been respecified: (1) percentage of residents whose need for help with activities of daily living has increased during a long stay, and (2) percentage of residents whose ability to walk independently worsened during a long stay. Finally, the measure of percentage of all residents with pressure ulcers (regardless of stay duration) will replace the measure of percentage of high-risk residents with pressure ulcers during a long stay. Additionally, CMS recalculated the scoring cut points for these four measures to obtain an even distribution of scores. Additionally, the quality measure rating cut points were also adjusted to maintain their same overall distribution of ratings across measured facilities.
In July of 2024, CMS updated the Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide to identify and explain a change in staffing case-mix methodology to adopt a model based on PDPM, changing the measures that CMS previously froze in April of 2024. This update to the Technical Users’ Guide also extended the gap period (during which no work hours are reported) for defining nurse staffing turnover from 60 days to 90 days. As a result of this update, for the three staffing turnover measures, individuals who no longer work in the nursing home are defined as eligible individuals who have a period of at least 90 consecutive days in which they do not work at all, increased from 60 days. CMS also updated the risk-adjustment models for the four claims-based measures to reflect measures of functional abilities and goals, rather than residents’ functional status. Finally, CMS revised the thresholds for the staffing measures and claims-based quality measures to maintain the same distribution by points for affected staffing and quality measures, maintaining the same proportions of available five- and four-star ratings for facilities.
In April of 2024, CMS updated its Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide in several respects. First, CMS froze four of the quality measures from any changes: (1) percentage of residents who made improvements in function (short stay); (2) percentage of residents whose need for help with activities of daily living has increased (long stay); (3) percentage of residents whose ability to move independently worsened (long stay); and (4) percentage of high-risk residents with pressure ulcers (long stay), which would have been unfrozen and modified as of January 2025. The short-stay functional improvement measure is replaced in October of 2024 with a new cross-setting function measure used in the SNF QRP. CMS also updated the staffing level case-mix adjustment methodology and froze three staffing level measures until July of 2024: (1) adjusted RN staffing (HPRD); (2) adjusted total nurse staffing (HPRD); and (3) adjusted total nurse staffing on weekends (HPRD). These frozen measures will not affect staff turnover measures. Additionally, beginning in April of 2024, CMS revised the staffing rating methodology to give the lowest possible score for staffing turnover measures to providers who fail to submit staffing data or submit erroneous data.
In 2023, CMS revised the nursing-home level exclusion criteria used on the administrator turnover measure, adding information regarding the staff turnover measure and an updated ratings table, which identifies the points needed for each nursing facility to obtain certain star ratings. Under these guidelines, only 10% of nursing facilities can receive a five-star rating in the state where it operates, with the bottom 20% receiving a one-star rating and the remaining 70% receiving a distribution of two-, three-, and four-star ratings.
State Legislation Concerning Nursing Home Supervision — California passed into law a bill which changes the limitations, or “caps,” on non-economic damages that can be awarded in medical negligence cases filed against healthcare providers (including skilled nursing and long-term care facilities). Beginning on January 1, 2023, non-economic damages (i.e., pain and suffering) available to plaintiffs suing healthcare providers in medical malpractice and professional negligence cases increased from $0.25 million to $0.35 million, and will then increase over the following ten years up to a $0.75 million cap. Once the limit reaches $0.75 million, a 2% annual inflationary adjustment will attach beginning on January 1, 2034. In wrongful death cases that arise from claims of medical malpractice and professional negligence, the cap on non-economic damages increased from $0.25 million to $0.50 million on January 1, 2023, and increase every year thereafter for ten years until the cap on non-economic damages in such cases is $1.0 million; thereafter, this cap will also be subject to an annual 2.0% increase. The caps are separate as to each claim, meaning that there is one cap for negligence and one cap for wrongful death. The new limits on non-economic damages apply prospectively to lawsuits filed on and after January 1, 2023.

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In 2022, California’s Governor signed into law the Skilled Nursing Facility Ownership and Management Reform Act of 2022. This law increases the oversight authority of the California Department of Public Health, and changes several provisions regarding SNF licensing in the State of California. This includes eliminating previous regulatory provisions that permitted SNFs to operate in advance of receiving their formal license from the State. This law also requires SNF license applicants to disclose additional information in connection with a license application and evaluates more data regarding the applicant’s prior operations, including prior citations, CMS sanctions and legal proceedings against the applicant or other facilities owned or managed by the applicant before issuing a license.

United States Supreme Court Decisions – On June 28, 2024, the United States Supreme Court issued its opinion in Loper Bright Enterprises v. Raimondo, deciding to vacate and remand decisions by the United States Courts of Appeals that relied on the Supreme Court’s own 1984 precedent in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., which sometimes required courts to defer to “permissible” agency interpretations of the statutes those agencies administered and enforced—a legal doctrine known as the “Chevron doctrine.” In Loper, the Supreme Court had to decide whether it should overrule or clarify the Chevron doctrine based on its application more than 40 years after its creation, and the Supreme Court chose to overrule it.

The Chevron doctrine required courts to use a two-step process to interpret statutes administered by federal agencies. After determining that the Chevron doctrine may apply to a dispute before it, a federal court must assess whether Congress has directly spoken to the precise question at issue. If (and only if) the congressional intent of the statute is clear, that is the end of the inquiry as to the statute’s meaning. If the court determines that the statute is silent or ambiguous regarding the issue at hand, then the Chevron doctrine requires the court to defer to the agency’s interpretation if it “is based on a permissible construction of the statute.”

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

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

Governmental agencies and other authorities periodically inspect our independent subsidiaries to assess compliance with various standards, rules and regulations, with potential fines, sanctions and other penalties for noncompliance. Unannounced surveys or inspections generally occur at least annually and may also follow a government agency's receipt of a complaint about a facility. Facilities must pass these inspections to maintain licensure under state law, to obtain or maintain certification under the Medicare and Medicaid programs, to continue participation in the Veterans Administration program at some facilities, and to comply with provider contracts with managed care clients at many facilities. From time to time, our independent subsidiaries, like others in the healthcare industry, may receive notices from federal and state regulatory agencies of an alleged failure to substantially comply with applicable standards, rules or regulations. These notices may require corrective action, may impose civil monetary penalties for noncompliance, and may threaten or impose other operating restrictions on SNFs such as admission holds, provisional skilled nursing license, or increased staffing requirements. If our independent subsidiaries fail to comply with these directives or otherwise fail to comply substantially with licensure and certification laws, rules and regulations, the facility could lose its certification as a Medicare or Medicaid provider, or lose its license permitting operation in the State.


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

Violations of the Social Security Act can result in inflation-adjusted criminal penalties of more than $0.1 million and ten years imprisonment. It can also result in inflation-adjusted civil monetary penalties of more than $0.1 million per violation and an assessment of up to three times the total amount of remuneration offered, paid, solicited, or received. It may also result in an individual's or organization's exclusion from future participation in federal healthcare programs. State Medicaid programs are required to enact an anti-kickback statute. Many states in which our independent subsidiaries operate have adopted or are considering similar legislative proposals, some of which extend beyond that state's Medicaid program, to prohibit the payment or receipt of remuneration for the referral of patients regardless of the source of payment for the care.
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Additionally, the "Stark Law" of the Social Security Act provides that a physician may not refer a Medicare or Medicaid patient for a “designated health service” to an entity with which the physician or an immediate family member has a financial relationship unless the financial arrangement meets an exception under the Stark Law or its regulations. Designated health services include, in relevant part, inpatient and outpatient hospital services, PT, OT, SLP, durable medical equipment, prosthetics, orthotics and supplies, diagnostic imaging, and home health services. Under the Stark Law, a “financial relationship” is defined as an ownership or investment interest or a compensation arrangement. If such a financial relationship exists and does not meet a Stark Law exception, the entity is disallowed from seeking payment under the Medicare or Medicaid programs or from collecting from the patient or other payor. Statutory and regulatory exceptions and exemptions to this exist and have specific rules that must be followed to qualify for such exception or exemption. Any funds collected for an item or service resulting from a referral that violates the Stark Law are not eligible for payment by federal healthcare programs and must be repaid. Violations of the Stark Law may result in the imposition of civil monetary penalties, including, treble damages. Individuals and organizations may also be excluded from participation in federal healthcare programs for Stark Law violations. Many states have enacted healthcare provider referral laws that go beyond physician self-referrals or apply to a greater range of services than just the designated health services under the Stark Law.
Regulations Regarding Patient Record Confidentiality
Health care providers are also subject to laws and regulations enacted to protect the confidentiality of patient health information and patients' right to access such information. For example, HHS has issued rules pursuant to HIPAA, including the Health Information Technology for Economic and Clinical Health (HITECH) Act which governs our use and disclosure of protected health information of patients. We and our independent subsidiaries have established policies and procedures to comply with HIPAA privacy and security requirements and our independent subsidiaries have adopted and implemented HIPAA compliance plans, which we believe comply with the HIPAA privacy and security regulations, which impose significant costs for ongoing compliance activities.
There are numerous other laws and legislative and regulatory initiatives at the federal and state levels addressing privacy and security concerns. Our independent subsidiaries are also subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA.
On January 17, 2024, CMS published the CMS Interoperability and Prior Authorization Final Rule (Interoperability Final Rule), which affects the data standards and application programming interfaces (APIs) used by entities that are payors for our services, including but not limited to Medicare Advantage organizations, Medicaid fee-for-service providers, and managed care organizations. This new rule requires these payor entities to adopt new patient access APIs beginning January 1, 2026, and to complete implementation of both patient and provider access APIs by January 1, 2027, to facilitate the sharing of payor information with payors and providers. While the purpose of this final rule is predominantly oriented to sharing information in the clinical setting and expediting the exchange of prior authorization data, this new rule may have implications for our business and how information is shared among our independent subsidiaries that participate in these programs, the payors, residents, and residents’ families involved in their care.
Antitrust Laws 

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


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

Further change is expected with respect to the DOJ and FTC’s antitrust policies due to the outcome of the 2024 presidential election, including as to how they relate to healthcare. As a result, these changes to the DOJ and FTC’s antitrust policies may be changed materially, not implemented, or reverted to prior statements that were withdrawn in February of 2023.
Americans with Disabilities Act (ADA)
Our independent subsidiaries must also comply with the ADA, and similar state and local laws to the extent that the facilities are "public accommodations" as defined in those laws. The obligation to comply with the ADA and other similar laws is an ongoing obligation, and the independent subsidiaries continue to assess their facilities relative to ADA compliance and make appropriate modifications as needed.
Civil Rights
The Office for Civil Rights (OCR) for HHS issued guidance to hospitals and long-term care facilities, emphasizing their obligation under CMS regulations to ensure non-discriminatory visitation policies, especially during public health emergencies. This guidance, part of the U.S. National Strategy to Counter Antisemitism, clarifies that these facilities cannot discriminate based on religion or other classes or characteristics protected against discrimination under federal civil rights laws. The guidance includes examples where non-compliance occurred, such as unequal treatment based on religious affiliation or dietary restrictions, and stricter screening processes for certain religious groups. OCR offers assistance to facilities to obtain compliance with these standards and encourages residents and other affected individuals to file complaints with OCR for potential administrative or civil action in cases of civil rights violations. OCR has been increasingly involved in the monitoring and enforcement of patient and resident rights, particularly under rulemaking completed under Section 1557 of the ACA.
Real Estate Investment Trust (REIT) Qualification
We elected for Standard Bearer to be taxed as a REIT for U.S. federal income tax purposes. Standard Bearer's qualification as a REIT will depend upon its ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code, relating to, among other things, the sources of its gross income, the composition and value of its assets, distribution levels to its shareholders and the concentration of ownership of its capital stock. We believe that Standard Bearer is organized in conformity with the requirements for qualification and taxation as a REIT under the Code and that its manner of operation has and will enable it to continue to meet the requirements for qualification and taxation as a REIT.
REGULATIONS SPECIFIC TO SENIOR LIVING COMMUNITIES AND ANCILLARY SERVICES
As previously mentioned, senior living services revenue, which accounted for 2.0% of total revenue, is primarily derived from private pay residents and senior living revenue derived from Medicaid funds. Thus, some of the regulations discussed above applicable to Medicaid providers, also apply to senior living.
A majority of states provide, or are approved to provide, Medicaid payments for personal care and medical services to some residents in licensed senior living communities. As rates paid to senior living community operators are generally lower than rates paid to SNF operators, some states use Medicaid funding of senior living services as a means of lowering the cost of services for residents who may not need the higher level of health services provided in SNFs. States that administer Medicaid programs for services in senior living communities are responsible for monitoring the participating communities and, as a result of the growth of senior living in recent years, these states have adopted licensing standards applicable to senior living communities.
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CMS has continued to commence a series of actions to increase its oversight of state quality assurance programs for senior living communities and has provided guidance and technical assistance to states to improve their ability to monitor and improve the quality of services paid through Medicaid waiver programs. CMS is encouraging state Medicaid programs to expand their use of home and community-based services as alternatives to facility-based services, pursuant to provisions of the ACA, and other authorities, through the use of several programs.
The types of laws and statutes affecting the regulatory landscape of the post-acute industry continue to expand and the pressure to enforce those laws by federal and state authorities continues to grow as well. In order to operate our businesses, we and our independent subsidiaries must comply with federal, state and local laws from healthcare including provisions regarding patient safety, staffing, and prescription drugs to environmental issues. Changes in the law or new interpretations of existing laws may have an adverse impact on our methods and costs of doing business.
RESULTS OF OPERATIONS
Our total revenue for the three months ended March 31, 2025 increased $162.9 million, or 16.1%, compared to the three months ended March 31, 2024, while our diluted GAAP earnings per share grew by 15.1%, from $1.19 to $1.37, compared to the three months ended March 31, 2024. Our Same Facilities occupancy of 82.6% during the three months ended March 31, 2025, an increase of 2.9% compared to the same period in 2024, demonstrates our ability to gain additional market share even at our more mature operations. Further, our Transitioning Facilities occupancy increased by 5.0% to 83.5% compared to the same period in 2024, highlighting our organic growth ability that results from transforming underperforming operations that we have acquired.
Throughout most of our history, our business has been affected by seasonal fluctuations in occupancy and acuity, which are most prominent when comparing the summer and winter months of the calendar year. For skilled nursing occupancy and skilled mix, we typically experience stronger occupancy and acuity during the first and fourth quarters and softening in the second and third quarters. Additionally, we historically have acquired operations with lower occupancy and skilled mix. As these operations become "operations of choice" in each of their respective healthcare markets, we typically see both occupancy and skilled mix increase.
Throughout the quarter, we continued to make progress on targeted initiatives related to increasing occupancy and the level of acuity and complexity of the patients we serve in our facilities, attracting and developing our people and acquiring underperforming skilled nursing operations and integrating them with our proven cultural and operational principles. During the three months ended March 31, 2025, we added 13 new operations. We consistently experience healthy growth in both revenue and overall results as we continue to work diligently with existing and recently acquired operations so that each can reach its full clinical and financial potential.
Our strength remains in our operating model, which empowers each operator to form their own market-specific strategy and adjust to the needs of their local medical communities, including methods for attracting new healthcare professionals into our workforce and retaining and developing existing staff. Despite continued labor pressures, there are positive trends on both turnover and agency usage across our operations.

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The following table sets forth details of operating results for our revenue, expenses and earnings, and their respective components, as a percentage of total revenue for the periods indicated:

Three Months Ended March 31,
 20252024
REVENUE:
Service revenue99.5 %99.4 %
Rental revenue0.5 0.6 
TOTAL REVENUE100.0 %100.0 %
Expenses:
Cost of services79.1 79.1 
Rent—cost of services4.9 5.2 
General and administrative expense5.3 5.7 
Depreciation and amortization2.1 1.9 
TOTAL EXPENSES91.4 %91.9 %
Income from operations8.6 8.1 
Other income (expense):
Interest expense(0.2)(0.2)
Interest income0.6 0.6 
Other income
— 0.3 
OTHER INCOME, NET0.4 %0.7 %
Income before provision for income taxes9.0 8.8 
Provision for income taxes2.2 2.0 
NET INCOME6.8 %6.8 %
Less: net income attributable to noncontrolling interests — — 
 Net income attributable to The Ensign Group, Inc.6.8 %6.8 %

 Three Months Ended March 31,
 20252024
SEGMENT INCOME(1)
(In thousands)
Skilled services$143,931 $126,809 
Standard Bearer(2)
8,583 7,258 
NON-GAAP FINANCIAL MEASURES:
PERFORMANCE METRICS
Adjusted EBT$118,730 $100,678 
EBITDA125,846 104,634 
Adjusted EBITDA 137,385 115,675 
FFO for Standard Bearer
17,059 14,087 
VALUATION METRICS
Adjusted EBITDAR$194,461 
(1) Segment income represents operating results of the reportable segments excluding gain and loss on sale of assets, real estate insurance recoveries and losses, impairment charges and provision for income taxes. Included in segment income for Standard Bearer are expenses for intercompany management fees between Standard Bearer and the Service Center and intercompany interest expense. Segment income is reconciled to the Condensed Consolidated Statement of Income in Note 8, Business Segments in Notes to Interim Financial Statements of this Quarterly Report on Form 10-Q.
(2) Standard Bearer segment income includes rental revenue and expenses from our independent subsidiaries.

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

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

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

We use the Non-GAAP Financial Measures:

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

We use certain Non-GAAP Financial Measures to compare the operating performance of each operation. These measures are useful in this regard because they do not include such costs as other expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the amount of debt that we have incurred, whether an operation is owned or leased, the date of acquisition of a facility or business, and the tax law of the state in which a business unit operates.

We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of certain Non-GAAP Financial Measures.

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

•they do not reflect our current or future cash requirements for capital expenditures or contractual commitments;
•they do not reflect changes in, or cash requirements for, our working capital needs;
•they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
•they do not reflect rent expenses, which are necessary to operate our leased operations, in the case of Adjusted EBITDAR;
•they do not reflect any income tax payments we may be required to make;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and do not reflect any cash requirements for such replacements; and
•other companies in our industry may calculate these measures differently than we do, which may limit their usefulness as comparative measures.
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We compensate for these limitations by using them only to supplement net income on a basis prepared in accordance with GAAP in order to provide a more complete understanding of the factors and trends affecting our business. Management strongly encourages investors to review our consolidated financial statements in their entirety and to not rely on any single financial measure. Because these Non-GAAP Financial Measures are not standardized, it may not be possible to compare these financial measures with other companies’ Non-GAAP financial measures having the same or similar names. These Non-GAAP Financial Measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. We strongly urge you to review the reconciliation of income from operations to the Non-GAAP Financial Measures in the table below, along with our Interim Financial Statements and related notes included elsewhere in this document.

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

PERFORMANCE MEASURES
Adjusted EBT

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

Adjusted EBT is income before provision for income taxes adjusted for non-core business items, which for the reported periods includes, to the extent applicable:

•stock-based compensation expense;
•acquisition related costs;
•costs incurred related to system implementations;
•litigation;
•impairment on long-lived assets; and
•amortization of patient base intangible assets.
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. EBITDA in the prior period has been recast to conform to the current period presentation.
Adjusted EBITDA

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

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

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Funds from Operations (FFO)

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

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

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

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

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

Three Months Ended March 31,
20252024
Consolidated statements of income data:
(In thousands)
Income before provision for income taxes$106,580 $89,598 
Stock-based compensation expense
10,724 8,238 
Litigation(1)
— 764 
Impairment of long-lived assets
— 1,849 
Acquisition related costs(2)
481 114 
Costs incurred related to system implementations
334 76 
Depreciation and amortization - patient base(3)
611 39 
ADJUSTED EBT
$118,730 $100,678 
(1) Represents specific proceedings arising outside of the ordinary course of business.
(2) Represents costs incurred to acquire operations that are not capitalizable.
(3) Represents amortization expenses related to patient base intangible assets at newly acquired skilled nursing and senior living facilities.


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

Three Months Ended March 31,
20252024
Consolidated statements of income data:
(In thousands)
Net income $80,353 $68,960 
Less: Net income attributable to noncontrolling interests
76 125 
Interest income
6,883 6,460 
Add: Provision for income taxes
26,227 20,638 
          Depreciation and amortization
24,188 19,657 
          Interest expense2,037 1,964 
EBITDA$125,846 $104,634 
Adjustments to EBITDA:
Stock-based compensation expense10,724 8,238 
Litigation(1)
— 764 
Impairment of long-lived assets
— 1,849 
Acquisition related costs(2)
481 114 
Costs incurred related to system implementations
334 76 
ADJUSTED EBITDA
$137,385 $115,675 
Rent—cost of services57,076 51,876 
ADJUSTED EBITDAR
$194,461 
(1) Litigation relates to specific proceedings arising outside of the ordinary course of business.
(2) Costs incurred to acquire operations that are not capitalizable.

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

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

Three Months Ended March 31, 2025
 Skilled servicesStandard BearerAll OtherEliminationsConsolidated
Total revenue
$1,123,554 $28,401 $52,426 $(31,340)$1,173,041 
Total expenses, including other income, net
979,623 19,818 98,360 (31,340)1,066,461 
Segment income (loss)143,931 8,583 (45,934)— 106,580 
Income before provision for income taxes $106,580 
Three Months Ended March 31, 2024
 Skilled servicesStandard BearerAll OtherEliminationsConsolidated
Total revenue
$969,602 $22,201 $42,572 $(24,203)$1,010,172 
Total expenses, including other income, net
842,793 14,943 85,192 (24,203)918,725 
Segment income (loss)126,809 7,258 (42,620)— 91,447 
Impairment of long-lived assets
(1,849)
Income before provision for income taxes$89,598 


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Our total revenue increased by $162.9 million, or 16.1%, compared to the three months ended March 31, 2024. The increase in revenue was primarily driven by an increase in occupancy of 2.9% and 5.0% from our skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing daily revenue rates and the impact of acquisitions. Additionally, our skilled services in Recently Acquired Facilities increased total revenue by $95.7 million, when compared to the same period in 2024.
Skilled Services

REVENUE

The following tables present the skilled services revenue and key performance metrics by category during the three months ended March 31, 2025 and 2024:
Three Months Ended March 31,
 20252024Change% Change
TOTAL FACILITY RESULTS: (Dollars in thousands)
Skilled services revenue$1,123,554 $969,602 $153,952 15.9 %
Number of facilities at period end297 264 33 12.5 %
Number of campuses at period end(1)
31 27 4 14.8 %
Actual patient days2,538,135 2,255,531 282,604 12.5 %
Occupancy percentage — Operational beds81.9 %80.1 %1.8 %2.2 %
Skilled mix by nursing days31.4 %31.0 %0.4 %1.3 %
Skilled mix by nursing revenue50.2 %49.9 %0.3 %0.6 %
Three Months Ended March 31,
 20252024Change% Change
SAME FACILITY RESULTS:(2)
(Dollars in thousands)
Skilled services revenue$834,788 $790,806 $43,982 5.6 %
Number of facilities at period end210 210 — — %
Number of campuses at period end(1)
25 25 — — %
Actual patient days1,858,807 1,827,162 31,645 1.7 %
Occupancy percentage — Operational beds82.6 %80.3 %2.3 %2.9 %
Skilled mix by nursing days33.1 %31.7 %1.4 %4.4 %
Skilled mix by nursing revenue52.1 %50.2 %1.9 %3.8 %
Three Months Ended March 31,
20252024Change% Change
TRANSITIONING FACILITY RESULTS:(3)
(Dollars in thousands)
Skilled services revenue$184,180 $169,354 $14,826 8.8 %
Number of facilities at period end48 48 — — %
Number of campuses at period end(1)
2 2 — — %
Actual patient days416,738 400,943 15,795 3.9 %
Occupancy percentage — Operational beds83.5 %79.5 %4.0 %5.0 %
Skilled mix by nursing days30.2 %28.8 %1.4 %4.9 %
Skilled mix by nursing revenue51.5 %49.9 %1.6 %3.2 %
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Three Months Ended March 31,
20252024Change% Change
RECENTLY ACQUIRED FACILITY RESULTS:(4)
(Dollars in thousands)
Skilled services revenue$104,586 $8,902 $95,684 NM
Number of facilities at period end39 5 34 NM
Number of campuses at period end(1)
4 — 4 NM
Actual patient days262,590 25,344 237,246 NM
Occupancy percentage — Operational beds74.6 %77.3 %NMNM
Skilled mix by nursing days20.8 %16.9 %NMNM
Skilled mix by nursing revenue32.6 %28.7 %NMNM
Three Months Ended March 31,
20252024Change% Change
FACILITY CLOSED RESULTS:(5)
(Dollars in thousands)
Skilled services revenue$— $540 $(540)NM
Actual patient days— 2,082 (2,082)NM
Occupancy percentage — Operational beds— %65.4 %NMNM
(1)Campus represents a facility that offers both skilled nursing and senior living services. Revenue and expenses related to skilled nursing and senior living services have been allocated and recorded in the respective operating segment.
(2)Same Facility results represent all facilities purchased prior to January 1, 2022.
(3)Transitioning Facility results represent all facilities purchased from January 1, 2022 to December 31, 2023.
(4)Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2024.
(5)Facility Closed results represent one closed operation during 2024 due to the transitioning of an intermediate care facility program to group home setting, which is included in All Other category. The operation revenue was excluded from Same Facilities results for the three months ended March 31, 2024 for comparison purposes.

Skilled services revenue increased by $154.0 million, or 15.9%, compared to the three months ended March 31, 2024. The increases in skilled services revenue were across all payer types, including increases in Medicaid revenue of $67.5 million, or 15.2%, Medicare revenue of $22.2 million, or 8.3%, managed care revenue of $39.1 million, or 20.8% and private revenue of $25.2 million, or 35.7%.

The increase in skilled services revenue was primarily driven by strong occupancy performance across our skilled services operations. Our consolidated occupancy increased by 2.2% to 81.9%, during the three months ended March 31, 2025 compared to the same period in 2024, as a result of an increase in skilled days, driven by steady growth in our managed care, Medicare and long-term care Medicaid patients.

Revenue in our Same Facilities increased by $44.0 million, or 5.6%, compared to the same period in 2024, due to increased occupancy from strong skilled days and revenue per patient day. Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 12.4%, mainly due to an increase in managed care days of 8.9% and revenue per patient day of 3.8%. Our Medicare revenue increased by 2.4% mainly due to an increase in Medicare days of 3.0%. In addition, Medicaid revenue increased by $8.3 million or 2.3%, mainly from the increase in revenue per patient day.

Revenue generated by our Transitioning Facilities increased by $14.8 million, or 8.8%, primarily due to improved occupancy growth, increases in skilled mix days and revenue per patient day. The increases in revenue were derived from increasing in Managed Care revenue of 21.1%, Medicaid revenue of 8.5% and private revenue of 19.8%. These increases demonstrate our ability to focus on increasing occupancy across payer types.

Skilled services revenue generated by Recently Acquired Facilities increased by approximately $95.7 million compared to the three months ended March 31, 2024. The increase was primarily due to 38 operational expansions between April 1, 2024 and March 31, 2025 across 13 states.

Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate lower overall occupancy during years of growth. In the future, if we acquire additional turnaround or start-up operations, we expect to see lower occupancy rates and skilled mix and these metrics are expected to vary from period to period based upon the type of facilities and operations that we acquire.
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The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate (1):
Three Months Ended March 31,
 Same FacilityTransitioningAcquisitionsTotal
 20252024202520242025202420252024
SKILLED NURSING AVERAGE DAILY REVENUE RATES:
Medicare$781.44 $744.04 $847.47 $812.47 $640.56 $628.81 $783.71 $757.86 
Managed care
569.59 548.99 590.42 558.39 482.20 485.09 566.74 549.91 
Other skilled652.03 620.03 587.93 511.16 690.03 — 645.88 606.82 
Total skilled revenue659.12 632.78 712.73 683.44 578.69 570.86 662.14 640.78 
Medicaid301.54 293.04 286.67 275.67 312.82 291.69 300.27 289.78 
Private and other payors293.28 283.66 315.52 293.34 323.57 262.39 300.96 285.16 
Total skilled nursing revenue
$419.26 $399.73 $417.77 $395.16 $369.69 $335.11 $413.94 $398.06 
(1) The rates are based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606.

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.0% and 4.3%, respectively, compared to the three months ended March 31, 2024. The increase is attributable to the 4.2% net market basket increase that became effective in October 2024, and a shift toward higher acuity patients.

Our average Medicaid rates increased 3.6% due to state reimbursement increases, our participation in supplemental Medicaid payment programs and quality improvement programs in various states and changes in Medicaid mix. For example, we continue to have increases in Medicaid days in states with higher rates, such as California.
Payor Sources as a Percentage of Skilled Nursing Services. We use our skilled mix as a measure of the quality of reimbursements we receive at our affiliated skilled nursing facilities over various periods.
The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:
 Three Months Ended March 31,
 Same FacilityTransitioningAcquisitionsTotal
 20252024202520242025202420252024
PERCENTAGE OF SKILLED NURSING REVENUE
Medicare21.9 %21.6 %29.2 %30.5 %15.5 %18.9 %22.5 %23.1 %
Managed care21.1 20.0 16.5 14.8 11.8 9.8 19.5 18.9 
Other skilled9.1 8.6 5.8 4.6 5.3 — 8.2 7.9 
Skilled Mix52.1 %50.2 %51.5 %49.9 %32.6 %28.7 %50.2 %49.9 %
Private and other payors6.8 7.3 6.7 8.0 12.6 9.7 7.3 7.4 
Medicaid41.1 42.5 41.8 42.1 54.8 61.6 42.5 42.7 
TOTAL SKILLED NURSING
100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
 Three Months Ended March 31,
 Same FacilityTransitioningAcquisitionsTotal
 20252024202520242025202420252024
PERCENTAGE OF SKILLED NURSING DAYS
Medicare11.7 %11.6 %14.4 %14.8 %9.0 %10.1 %11.9 %12.1 %
Managed care15.6 14.5 11.7 10.5 9.0 6.8 14.2 13.7 
Other skilled5.8 5.6 4.1 3.5 2.8 — 5.3 5.2 
Skilled Mix33.1 %31.7 %30.2 %28.8 %20.8 %16.9 %31.4 %31.0 %
Private and other payors9.7 10.3 8.9 10.8 14.4 12.4 10.0 10.4 
%

Cost of services related to our skilled services segment increased by $123.9 million, or 16.1% from the same period in 2024. Cost of services as a percentage of revenue increased to 79.4% from 79.2% due to increased costs from our new acquisitions which are in the turnaround stage, increased insurance expenses, offset by decreased expense related to the deferred compensation investment program. Our cost of services as a percentage of revenue varies depending on the volume of acquisitions during the period, which typically have higher costs during the transition period.
Standard Bearer

 Three Months Ended March 31,Change
20252024$%
(Dollars in thousands)
Rental revenue generated from third-party tenants$4,497 $4,195 $302 7.2 %
Rental revenue generated from Ensign's independent subsidiaries
23,904 18,006 5,898 32.8 
TOTAL RENTAL REVENUE
$28,401 $22,201 $6,200 27.9 %
Segment income8,583 7,258 1,325 18.3 
Depreciation and amortization8,476 6,829 1,647 24.1 
FFO
$17,059 $14,087 $2,972 21.1 %
Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $6.2 million, or 27.9%, to $28.4 million, compared to the three months ended March 31, 2024. The increase in revenue is primarily attributable to 27 real estate purchases, as well as annual rent increases since the three months ended March 31, 2024.

FFO — Our FFO increased by $3.0 million, or 21.1%, to $17.1 million, compared to the three months ended March 31, 2024. The increase in rental revenue of $6.2 million was partially offset by increases in interest expense of $2.8 million associated with the agreements between Standard Bearer and us as we continue to grow our real estate portfolio.
All Other Revenue

Our other revenue increased by $9.9 million, or 23.1%, to $52.4 million, compared to the three months ended March 31, 2024. Other revenue includes senior living revenue of $24.0 million, revenue from other ancillary services of $25.4 million and rental income of $3.0 million. The increase in other revenue is primarily attributable to the increase in occupancy in our senior living operations and growth in our other ancillary services.

Consolidated Financial Expenses
Rent-cost of services — Our rent-cost of services as a percentage of revenue decreased by 0.3% to 4.9%, since our operational expansions included a higher mix of real estate purchases.
General and administrative expense — General and administrative expense increased $5.4 million or 9.4%, to $62.6 million. This increase was primarily driven by additional headcount due to acquisition activities. General and administrative expense as a percentage of revenue decreased by 0.4% to 5.3%.

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Depreciation and amortization — Depreciation and amortization expense increased $4.5 million, or 23.1%, to $24.2 million. This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations and capital expenditures. Depreciation and amortization expense as a percentage of revenue increased 0.2%, to 2.1%.
Other income, net — Other income, net as a percentage of revenue decreased by 0.3%. Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses. Other income, net decreased by $2.2 million due to losses in our deferred compensation plan which incurs gains or losses depending on market performance. During the three months ended March 31, 2025 and 2024, the deferred compensation plan had a loss of $0.3 million and a gain of $2.4 million, respectively. We also recorded a reduction in expense and an offsetting expense allocated between cost of services and general and administrative expenses for the respective periods.
Provision for income taxes — Our effective tax rate was 24.6% for the three months ended March 31, 2025, compared to 23.0% for the same period in 2024. The effective tax rate for both periods was driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses including non-deductible compensation. See Note 13, Income Taxes, in the Notes to the Interim Financial Statements for further discussion.

Liquidity and Capital Resources
Our principal sources of liquidity have historically been derived from our cash flows from operations and long-term debt issuance secured by our real property and borrowings under our revolving Credit Facility (defined below). Our liquidity as of March 31, 2025 is impacted by cash generated from strong operational performance offset by investments made for our operational expansions and ancillary businesses as well as capital expenditures to improve the quality of care at our existing operations.
Historically, we have primarily financed the majority of our acquisitions through mortgages on our properties, our Credit Facility and cash generated from operations. Cash paid to fund acquisitions was $194.2 million for the three months ended March 31, 2025 compared to cash paid of $2.9 million for the three months ended March 31, 2024. Total capital expenditures for property and equipment were $42.9 million and $29.4 million for the three months ended March 31, 2025 and 2024, respectively. We currently have approximately $150.0 million budgeted for renovation projects in 2025. We believe our current cash balances, our cash flow from operations and the amounts available for borrowing under our Credit Facility will be sufficient to cover our operating needs for at least the next 12 months.

We may, in the future, seek to raise additional capital to fund growth, capital renovations, operations and other business activities, but such additional capital may not be available on acceptable terms, on a timely basis, or at all.
Our cash and cash equivalents of approximately $282.7 million as of March 31, 2025 consisted of bank deposits and money market funds. In addition, as of March 31, 2025, we held investments of approximately $219.1 million. We believe our investments that were in an unrealized loss position as of March 31, 2025 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so.

As mentioned above, our primary source of cash is from our ongoing operations. Our positive cash flows have supported our business and have allowed us to pay regular dividends to our stockholders. We currently anticipate that existing cash and total investments as of March 31, 2025, along with projected operating cash flows and available financing, will support our normal business operations for the foreseeable future.
Share Repurchases
On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from March 26, 2025. During the three months ended March 31, 2025, we repurchased 84 shares of our common stock for $10.8 million. Subsequent to March 31, 2025, we repurchased 73 shares of our common stock for $9.2 million.
On May 16, 2024, the Board of Directors approved a stock repurchase program pursuant to which we could repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2024. We did not purchase any shares pursuant to the stock repurchase program before the repurchase program was cancelled on February 21, 2025.
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Under these repurchase programs, we are authorized to repurchase our issued and outstanding common shares from time to time in open-market and privately negotiated transactions, tender offers, pursuant to contractual provisions, and block trades, or otherwise in accordance with federal securities laws. The stock repurchase programs do not obligate us to acquire any specific number of shares. Any such repurchases will depend on our business strategy, prevailing market conditions, our liquidity requirements, contractual restrictions or covenants, compliance with securities laws, and other factors. The amounts involved in any such transaction may be material.
The following table presents selected data from our condensed consolidated statement of cash flows for the periods presented:
Three Months Ended March 31,
 20252024
NET CASH PROVIDED BY/(USED IN):(In thousands)
Operating activities$72,220 $35,312 
Investing activities(243,804)(34,655)
Financing activities(10,348)1,556 
Net (decrease) increase in cash and cash equivalents
$(181,932)$2,213 
Cash and cash equivalents beginning of period464,598 509,626 
Cash and cash equivalents at end of period$282,666 $511,839 
— 
(1) These purchases were effectuated through a Rule 10b5-1 trading plan adopted by the Company on February 21, 2025. The program may be suspended or discontinued at any time and does not have an expiration date.
(2) The average price paid per share excludes any broker commissions.

Stock Repurchase Programs — On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20 million of our common stock under the program for a period of approximately 12 months from March 26, 2025. During the three months ended March 31, 2025, we purchased 84 shares of its common stock for $10.8 million. Subsequent to March 31, 2025, the Company repurchased 73 shares of its common stock for $9.2 million. This repurchase program expired upon the repurchase of the fully authorized amount under the plan.
On May 16, 2024, the Board of Directors approved a stock repurchase program pursuant to which the Company could repurchase up to $20 million of its common stock under the program for a period of approximately 12 months from September 1, 2024. The Company did not purchase any shares pursuant to this stock repurchase program before the repurchase program was cancelled on February 21, 2025.
Under these repurchase programs, 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 5. OTHER INFORMATION

Rule 10b5-1 Plan Elections

During the quarter ended March 31, 2025, none of the Company's directors or "officers", as defined in Rule 16a-1(f) of the Exchange Act, , modified, or a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" as each term is defined in Item 408 of Regulation S-K.



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Item 6.        EXHIBITS

EXHIBIT INDEX
ExhibitDescription
3.1
Fifth Amended and Restated Certificate of Incorporation of the Corporation, filed with the Delaware Secretary of State on November 15, 2007, and all Certificates of Amendment thereto filed with the Delaware Secretary of State through May 23, 2024 (attached as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (File No. 001-33757) filed with the SEC on July 27, 2024)
3.2
Amended and Restated Bylaws of The Ensign Group, Inc. (attached as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-33757) filed with the SEC on December 21, 2007)
3.3
Amendment to the Amended and Restated Bylaws, dated August 5, 2014 (attached as Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-33757) filed with the SEC on August 8, 2014)
3.4
Amendment to the Amended and Restated Bylaws of the Ensign Group, Inc., dated March 15, 2024
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
* Documents not filed herewith are incorporated by reference to the prior filings identified in the table above.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 THE ENSIGN GROUP, INC.
April 29, 2025BY: /s/ SUZANNE D. SNAPPER  
  Suzanne D. Snapper 
  
Chief Financial Officer, Executive Vice President and Director (Principal Financial Officer and Principal Accounting Officer) 

 



 

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