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

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

For the quarterly period ended September 30, 2025.
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
| For the transition period from to .

Commission file number: 001-33757
_____________________________
THE ENSIGN GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

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

29222 Rancho Viejo Road, Suite 127
San Juan Capistrano, CA 92675
(Address of Principal Executive Offices and Zip Code)
(949) 487-9500
(Registrant’s Telephone Number, Including Area Code)
_____________________________
Securities registered pursuant to Section 12(b) of the Act:

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

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

As of October 29, 2025, 57,924,783 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2025
TABLE OF CONTENTS

PART I. Financial Information | Pg.
Item 1. Financial Statements (unaudited): |
Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 | 1
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2025 and 2024 | 2
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2025 and 2024 | 3
Condensed Consolidated Statements of Cash Flows for the n ine months ended Septe mber 30, 2025 and 2024 | 5
Notes to the Condensed Consolidated Financial Statements | 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 72
Item 4. Controls and Procedures | 73
P ART II. Other Information |
Item 1. Legal Proceedings | 73
Item 1A. Risk Factors | 76
Item 5. Other Information | 108
Item 6. Exhibits | 109
Signatures |

Table of Contents
PART I.
Item 1. FINANCIAL STATEMENTS
THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)

| September 30, 2025 |  | December 31, 2024
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 443,668 |  |  | $ | 464,598 |
Accounts receivable—less allowance for doubtful accounts of $7,948 and $8,435 at September 30, 2025 and December 31, 2024, respectively | 612,744 |  |  | 569,897 |
Investments—current | 62,641 |  |  | 62,255 |
Prepaid expenses and other current assets | 87,525 |  |  | 60,882 |
Total current assets | $ | 1,206,578 |  |  | $ | 1,157,632 |
Property and equipment, net | 1,598,401 |  |  | 1,291,354 |
Right-of-use assets | 2,047,979 |  |  | 1,861,071 |
Insurance subsidiary deposits and investments | 169,142 |  |  | 141,246 |
Deferred tax assets | 56,125 |  |  | 66,281 |
Restricted and other assets | 43,789 |  |  | 46,499 |
Intangible assets, net | 6,442 |  |  | 7,292 |
Goodwill | 97,981 |  |  | 97,981 |
TOTAL ASSETS | $ | 5,226,437 |  |  | $ | 4,669,356 |
LIABILITIES AND EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 105,796 |  |  | $ | 98,947 |
Accrued wages and related liabilities | 370,530 |  |  | 347,532 |
Lease liabilities—current | 110,817 |  |  | 93,475 |
Accrued self-insurance liabilities—current | 73,854 |  |  | 67,331 |
Other accrued liabilities | 160,042 |  |  | 132,057 |
Current maturities of long-term debt | 4,191 |  |  | 4,086 |
Total current liabilities | $ | 825,230 |  |  | $ | 743,428 |
Long-term debt—less current maturities | 138,557 |  |  | 141,585 |
Long-term lease liabilities—less current portion | 1,902,946 |  |  | 1,735,325 |
Accrued self-insurance liabilities—less current portion | 160,646 |  |  | 144,421 |
Other long-term liabilities | 76,156 |  |  | 64,169 |
TOTAL LIABILITIES | $ | 3,103,535 |  |  | $ | 2,828,928 |
Commitments and contingencies (Notes 14 and 19) |  |  |
EQUITY |  |  |
Ensign Group, Inc. stockholders' equity: |  |  |
Common stock: $0.001 par value; 150,000 shares authorized; 61,461 and 57,897 shares issued and shares outstanding at September 30, 2025, respectively, and 60,838 and 57,438 shares issued and shares outstanding at December 31, 2024, respectively | 61 |  |  | 61 |
Additional paid-in capital | 593,781 |  |  | 528,052 |
Retained earnings | 1,664,458 |  |  | 1,426,762 |
Common stock in treasury, at cost, 3,564 and 3,400 shares at September 30, 2025 and December 31, 2024, respectively | (138,835) |  |  | (117,764) |
Total Ensign Group, Inc. stockholders' equity | $ | 2,119,465 |  |  | $ | 1,837,111 |
Non-controlling interest | 3,437 |  |  | 3,317 |
Total equity | $ | 2,122,902 |  |  | $ | 1,840,428 |
TOTAL LIABILITIES AND EQUITY | $ | 5,226,437 |  |  | $ | 4,669,356 |

See accompanying notes to condensed consolidated financial statements.
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Table of Contents
THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024 |  |
| (In thousands, except per share data)
REVENUE |  |  |  |  |  |  |  |  |
Service revenue | $ | 1,289,779 |  |  | $ | 1,076,092 |  |  | $ | 3,678,233 |  |  | $ | 3,111,151 |  |  |
Rental revenue | 6,626 |  |  | 5,684 |  |  | 18,982 |  |  | 17,082 |  |  |
TOTAL REVENUE | $ | 1,296,405 |  |  | $ | 1,081,776 |  |  | $ | 3,697,215 |  |  | $ | 3,128,233 |  |  |
Expense: |  |  |  |  |  |  |  |  |
Cost of services | 1,044,659 |  |  | 859,992 |  |  | 2,944,288 |  |  | 2,479,615 |  |  |
Rent—cost of services | 61,528 |  |  | 54,792 |  |  | 175,799 |  |  | 159,940 |  |  |
General and administrative expense | 67,367 |  |  | 56,180 |  |  | 199,029 |  |  | 169,532 |  |  |
Depreciation and amortization | 26,633 |  |  | 21,474 |  |  | 76,606 |  |  | 61,619 |  |  |
TOTAL EXPENSES | $ | 1,200,187 |  |  | $ | 992,438 |  |  | $ | 3,395,722 |  |  | $ | 2,870,706 |  |  |
Income from operations | 96,218 |  |  | 89,338 |  |  | 301,493 |  |  | 257,527 |  |  |
Other income (expense): |  |  |  |  |  |  |  |  |
Interest expense | (1,971) |  |  | (2,024) |  |  | (6,033) |  |  | (6,028) |  |  |
Interest income | 6,168 |  |  | 7,607 |  |  | 18,291 |  |  | 21,151 |  |  |
Other income | 6,185 |  |  | 3,753 |  |  | 11,787 |  |  | 7,686 |  |  |
OTHER INCOME, NET | $ | 10,382 |  |  | $ | 9,336 |  |  | $ | 24,045 |  |  | $ | 22,809 |  |  |
Income before provision for income taxes | 106,600 |  |  | 98,674 |  |  | 325,538 |  |  | 280,336 |  |  |
Provision for income taxes | 22,689 |  |  | 20,107 |  |  | 76,808 |  |  | 61,628 |  |  |
NET INCOME | $ | 83,911 |  |  | $ | 78,567 |  |  | $ | 248,730 |  |  | $ | 218,708 |  |  |
Less: |  |  |  |  |  |  |  |  |
Net income attributable to noncontrolling interests | 67 |  |  | 123 |  |  | 213 |  |  | 422 |  |  |
NET INCOME ATTRIBUTABLE TO THE ENSIGN GROUP, INC. | $ | 83,844 |  |  | $ | 78,444 |  |  | $ | 248,517 |  |  | $ | 218,286 |  |  |
NET INCOME PER SHARE ATTRIBUTABLE TO THE ENSIGN GROUP INC. |  |  |  |  |  |  |  |  |
Basic | $ | 1.46 |  |  | $ | 1.38 |  |  | $ | 4.34 |  |  | $ | 3.86 |  |  |
Diluted | $ | 1.42 |  |  | $ | 1.34 |  |  | $ | 4.23 |  |  | $ | 3.76 |  |  |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |  |  |  |  |  |  |  |  |
Basic | 57,382 |  |  | 56,776 |  |  | 57,214 |  |  | 56,553 |  |  |
Diluted | 58,956 |  |  | 58,444 |  |  | 58,713 |  |  | 58,125 |  |  |

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 Stock |  | Non-Controlling Interest |  |
(In thousands) | Shares |  | Amount |  |  |  | Shares |  | Amount |  |  | Total
BALANCE - JANUARY 1, 2025 | 57,438 |  |  | $ | 61 |  |  | $ | 528,052 |  |  | $ | 1,426,762 |  |  | 3,400 |  |  | $ | (117,764) |  |  | $ | 3,317 |  |  | $ | 1,840,428 |
Issuance of common stock to employees and directors resulting from the exercise of stock options | 106 |  |  | — |  |  | 5,050 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,050 |
Issuance of restricted stock, net of forfeitures | 87 |  |  | — |  |  | 8,003 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 8,003 |
Shares of common stock used to satisfy tax withholding obligations | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (14) |  |  | — |  |  | (14) |
Dividends declared ($0.0625 per share) | — |  |  | — |  |  | — |  |  | (3,597) |  |  | — |  |  | — |  |  | — |  |  | (3,597) |
Employee stock award compensation | — |  |  | — |  |  | 10,691 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 10,691 |
Repurchase of common stock (Note 20) | (84) |  |  | — |  |  | — |  |  | — |  |  | 84 |  |  | (10,775) |  |  | — |  |  | (10,775) |
Acquisition of noncontrolling interest shares | — |  |  | — |  |  | (11) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (11) |
Net income attributable to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 76 |  |  | 76 |
Noncontrolling interests attributable to subsidiary equity plan | — |  |  | — |  |  | 82 |  |  | — |  |  | — |  |  | — |  |  | (53) |  |  | 29 |
Net income attributable to the Ensign Group, Inc. | — |  |  | — |  |  | — |  |  | 80,277 |  |  | — |  |  | — |  |  | — |  |  | 80,277 |
BALANCE - MARCH 31, 2025 | 57,547 |  |  | $ | 61 |  |  | $ | 551,867 |  |  | $ | 1,503,442 |  |  | 3,484 |  |  | $ | (128,553) |  |  | $ | 3,340 |  |  | $ | 1,930,157 |
Issuance of common stock to employees and directors resulting from the exercise of stock options | 168 |  |  | — |  |  | 8,652 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 8,652 |
Issuance of restricted stock, net of forfeitures | 41 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Shares of common stock used to satisfy tax withholding obligations | (7) |  |  | — |  |  | — |  |  | — |  |  | 7 |  |  | (1,057) |  |  | — |  |  | (1,057) |
Dividends declared ($0.0625 per share) | — |  |  | — |  |  | — |  |  | (3,605) |  |  | — |  |  | — |  |  | — |  |  | (3,605) |
Employee stock award compensation | — |  |  | — |  |  | 11,628 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 11,628 |
Repurchase of common stock (Note 20) | (73) |  |  | — |  |  | — |  |  | — |  |  | 73 |  |  | (9,225) |  |  | — |  |  | (9,225) |
Acquisition of noncontrolling interest shares | — |  |  | — |  |  | (64) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (64) |
Net income attributable to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 70 |  |  | 70 |
Noncontrolling interests attributable to subsidiary equity plan | — |  |  | — |  |  | 117 |  |  | — |  |  | — |  |  | — |  |  | (86) |  |  | 31 |
Net income attributable to the Ensign Group, Inc. | — |  |  | — |  |  | — |  |  | 84,396 |  |  | — |  |  | — |  |  | — |  |  | 84,396 |
BALANCE - JUNE 30, 2025 | 57,676 |  |  | $ | 61 |  |  | $ | 572,200 |  |  | $ | 1,584,233 |  |  | 3,564 |  |  | $ | (138,835) |  |  | $ | 3,324 |  |  | $ | 2,020,983 |
Issuance of common stock to employees and directors resulting from the exercise of stock options | 181 |  |  | — |  |  | 9,024 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 9,024 |
Issuance of restricted stock, net of forfeitures (Note 16) | 40 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Dividends declared ($0.0625 per share) | — |  |  | — |  |  | — |  |  | (3,619) |  |  | — |  |  | — |  |  | — |  |  | (3,619) |
Employee stock award compensation | — |  |  | — |  |  | 12,868 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 12,868 |
Acquisition of noncontrolling interest shares | — |  |  | — |  |  | (382) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (382) |
Net income attributable to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 67 |  |  | 67 |
Noncontrolling interests attributable to subsidiary equity plan | — |  |  | — |  |  | 71 |  |  | — |  |  | — |  |  | — |  |  | 46 |  |  | 117 |
Net income attributable to the Ensign Group, Inc. | — |  |  | — |  |  | — |  |  | 83,844 |  |  | — |  |  | — |  |  | — |  |  | 83,844 |
BALANCE - SEPTEMBER 30, 2025 | 57,897 |  |  | $ | 61 |  |  | $ | 593,781 |  |  | $ | 1,664,458 |  |  | 3,564 |  |  | $ | (138,835) |  |  | $ | 3,437 |  |  | $ | 2,122,902 |

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| Common Stock |  | Additional Paid-In Capital |  | Retained Earnings |  | Treasury Stock |  | Non-Controlling Interest |  |
(In thousands) | Shares |  | Amount |  |  |  | Shares |  | Amount |  |  | Total
BALANCE - JANUARY 1, 2024 | 56,597 |  |  | $ | 60 |  |  | $ | 465,707 |  |  | $ | 1,142,653 |  |  | 3,390 |  |  | $ | (116,555) |  |  | $ | 5,452 |  |  | $ | 1,497,317 |
Issuance of common stock to employees and directors resulting from the exercise of stock options | 219 |  |  | — |  |  | 6,229 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6,229 |
Issuance of restricted stock, net of forfeitures | 88 |  |  | — |  |  | 6,165 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6,165 |
Shares of common stock used to satisfy tax withholding obligations | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (14) |  |  | — |  |  | (14) |
Dividends declared ($0.0600 per share) | — |  |  | — |  |  | — |  |  | (3,414) |  |  | — |  |  | — |  |  | — |  |  | (3,414) |
Employee stock award compensation | — |  |  | — |  |  | 8,231 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 8,231 |
Acquisition of noncontrolling interest shares | — |  |  | — |  |  | (10) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (10) |
Net income attributable to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 125 |  |  | 125 |
Noncontrolling interests attributable to subsidiary equity plan | — |  |  | — |  |  | 14 |  |  | — |  |  | — |  |  | — |  |  | (11) |  |  | 3 |
Net income attributable to the Ensign Group, Inc. | — |  |  | — |  |  | — |  |  | 68,835 |  |  | — |  |  | — |  |  | — |  |  | 68,835 |
BALANCE - MARCH 31, 2024 | 56,904 |  |  | $ | 60 |  |  | $ | 486,336 |  |  | $ | 1,208,074 |  |  | 3,390 |  |  | $ | (116,569) |  |  | $ | 5,566 |  |  | $ | 1,583,467 |
Issuance of common stock to employees and directors resulting from the exercise of stock options | 117 |  |  | 1 |  |  | 4,089 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,090 |
Issuance of restricted stock, net of forfeitures | 38 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Shares of common stock used to satisfy tax withholding obligations | (10) |  |  | — |  |  | — |  |  | — |  |  | 10 |  |  | (1,195) |  |  | — |  |  | (1,195) |
Dividends declared ($0.0600 per share) | — |  |  | — |  |  | — |  |  | (3,424) |  |  | — |  |  | — |  |  | — |  |  | (3,424) |
Employee stock award compensation | — |  |  | — |  |  | 8,978 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 8,978 |
Acquisition of noncontrolling interest shares | — |  |  | — |  |  | (29) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (29) |
Net income attributable to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 174 |  |  | 174 |
Noncontrolling interests attributable to subsidiary equity plan | — |  |  | — |  |  | 37 |  |  | — |  |  | — |  |  | — |  |  | (34) |  |  | 3 |
Net income attributable to the Ensign Group, Inc. | — |  |  | — |  |  | — |  |  | 71,007 |  |  | — |  |  | — |  |  | — |  |  | 71,007 |
BALANCE - JUNE 30, 2024 | 57,049 |  |  | $ | 61 |  |  | $ | 499,411 |  |  | $ | 1,275,657 |  |  | 3,400 |  |  | $ | (117,764) |  |  | $ | 5,706 |  |  | $ | 1,663,071 |
Issuance of common stock to employees and directors resulting from the exercise of stock options | 205 |  |  | — |  |  | 7,977 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 7,977 |
Issuance of restricted stock, net of forfeitures (Note 16) | 27 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Dividends declared ($0.0600 per share) | — |  |  | — |  |  | — |  |  | (3,437) |  |  | — |  |  | — |  |  | — |  |  | (3,437) |
Employee stock award compensation | — |  |  | — |  |  | 9,177 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 9,177 |
Acquisition of noncontrolling interest shares | — |  |  | — |  |  | (2,387) |  |  | — |  |  | — |  |  | — |  |  | (2,024) |  |  | (4,411) |
Net income attributable to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 123 |  |  | 123 |
Noncontrolling interests attributable to subsidiary equity plan | — |  |  | — |  |  | 158 |  |  | — |  |  | — |  |  | — |  |  | (155) |  |  | 3 |
Net income attributable to the Ensign Group, Inc. | — |  |  | — |  |  | — |  |  | 78,444 |  |  | — |  |  | — |  |  | — |  |  | 78,444 |
BALANCE - SEPTEMBER 30, 2024 | 57,281 |  |  | $ | 61 |  |  | $ | 514,336 |  |  | $ | 1,350,664 |  |  | 3,400 |  |  | $ | (117,764) |  |  | $ | 3,650 |  |  | $ | 1,750,947 |

See accompanying notes to condensed consolidated financial statements.
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Table of Contents
THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

| Nine Months Ended September 30, |  |
(In thousands) | 2025 |  | 2024 |  |
Cash flows from operating activities: |  |  |  |  |
Net income | $ | 248,730 |  |  | $ | 218,708 |  |  |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |
Depreciation and amortization | 76,606 |  |  | 61,619 |  |  |
Amortization of deferred financing fees | 793 |  |  | 796 |  |  |
Non-cash leasing arrangement | 632 |  |  | 590 |  |  |
Impairment of long-lived assets | 1,073 |  |  | 1,849 |  |  |
Deferred income taxes | 10,156 |  |  | 1,931 |  |  |
Provision for doubtful accounts | 1,509 |  |  | 1,419 |  |  |
Stock-based compensation | 35,375 |  |  | 26,406 |  |  |
Cash received from insurance proceeds | 3,877 |  |  | 199 |  |  |
(Gain) loss on insurance claims, other investments and asset disposals | (5,953) |  |  | 849 |  |  |
Change in operating assets and liabilities |  |  |  |  |
Accounts receivable | (44,356) |  |  | (69,025) |  |  |
Prepaid income taxes | (19,507) |  |  | (22,130) |  |  |
Prepaid expenses and other assets | (7,716) |  |  | (16,668) |  |  |
Cash surrender value of life insurance policy premiums | (16,332) |  |  | (14,840) |  |  |
Deferred compensation liability | 16,332 |  |  | 14,941 |  |  |
Operating lease obligations | (3,265) |  |  | 331 |  |  |
Accounts payable | 5,449 |  |  | (5,237) |  |  |
Accrued wages and related liabilities | 27,549 |  |  | 25,303 |  |  |
Other accrued liabilities | 27,081 |  |  | 2,308 |  |  |
Accrued self-insurance liabilities | 22,917 |  |  | 17,381 |  |  |
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | 380,950 |  |  | $ | 246,730 |  |  |
Cash flows from investing activities: |  |  |  |  |
Purchase of property and equipment | (143,714) |  |  | (110,079) |  |  |
Cash payments for acquisitions | (240,300) |  |  | (83,384) |  |  |
Escrow deposits | — |  |  | (3,846) |  |  |
Cash from insurance proceeds | 3,567 |  |  | 1,562 |  |  |
Cash proceeds from the sale of assets | 124 |  |  | 2,808 |  |  |
Purchases of investments | (91,791) |  |  | (52,262) |  |  |
Maturities of investments | 82,278 |  |  | 22,553 |  |  |
Other restricted assets | 599 |  |  | (817) |  |  |
NET CASH USED IN INVESTING ACTIVITIES | $ | (389,237) |  |  | $ | (223,465) |  |  |
Cash flows from financing activities: |  |  |  |  |
Proceeds from debt (Note 14) | — |  |  | 400 |  |  |
Payments on debt | (3,050) |  |  | (3,350) |  |  |
Issuance of common stock upon exercise of options | 22,726 |  |  | 18,296 |  |  |
Repurchase of shares of common stock to satisfy tax withholding obligations | (1,071) |  |  | (1,209) |  |  |
Repurchase of shares of common stock (Note 20) | (20,000) |  |  | — |  |  |
Dividends paid | (10,791) |  |  | (10,234) |  |  |
Non-controlling interest distribution | — |  |  | (278) |  |  |
Purchase of non-controlling interest | (457) |  |  | (4,450) |  |  |
NET CASH USED IN FINANCING ACTIVITIES | $ | (12,643) |  |  | $ | (825) |  |  |
Net (decrease)/increase in cash and cash equivalents | (20,930) |  |  | 22,440 |  |  |
Cash and cash equivalents beginning of period | 464,598 |  |  | 509,626 |  |  |
Cash and cash equivalents end of period | $ | 443,668 |  |  | $ | 532,066 |  |  |

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| Nine Months Ended September 30, |  |
(In thousands) | 2025 |  | 2024 |  |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |  |  |  |  |
Cash paid during the period for: |  |  |  |  |
Interest | $ | 5,220 |  |  | $ | 5,276 |  |  |
Income taxes | 86,181 |  |  | 81,962 |  |  |
Lease liabilities | 178,699 |  |  | 159,487 |  |  |
Non-cash financing and investing activity |  |  |  |  |
Accrued capital expenditures | $ | 9,300 |  |  | $ | 7,300 |  |  |
Accrued dividends declared | 3,619 |  |  | 3,437 |  |  |
Right-of-use assets obtained in exchange for new and modified operating lease obligations | 258,486 |  |  | 220,815 |  |  |

See accompanying notes to condensed consolidated financial statements.
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Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars, shares and options in thousands, except per share data)
1. DESCRIPTION OF BUSINESS
The Company — The Ensign Group, Inc. (collectively, Ensign or the Company), is a holding company with no direct operating assets, employees or revenue. The Company's independent subsidiaries provide health care services across the post-acute care continuum and engage in the ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare-related properties and ancillary businesses. As of September 30, 2025, the Company's independent subsidiaries operated 361 facilities and other ancillary operations located in 17 states. The Company's independent subsidiaries have a collective capacity of approximately 37,100 operational skilled nursing beds and 3,400 senior living units. As of September 30, 2025, the Company's independent subsidiaries operated 249 facilities under long-term lease arrangements and had options to purchase eight of those 249 facilities. The Company's real estate portfolio consists of 148 owned real estate properties, which includes 112 facilities operated and managed by the Company's independent subsidiaries, 36 operations leased to and operated by third-party operators and the Service Center (defined below) location. Of those 36 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.
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 September 30, 2025, and for the three and nine months ended September 30, 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation — The accompanying Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The Company is the sole member or stockholder of various consolidated limited liability companies and corporations established to operate various acquired skilled nursing operations, senior living operations and related ancillary services. All intercompany transactions and balances have been eliminated in consolidation. The Company presents noncontrolling interests within the equity section of its condensed consolidated balance sheets and the amount of consolidated net income that is attributable to The Ensign Group, Inc. and the noncontrolling interests in its condensed consolidated statements of income. The Interim Financial Statements include the accounts of all independent subsidiaries controlled by the Company through its ownership of a majority voting interest.
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Table of Contents | THE ENSIGN GROUP, INC. |
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The preparation of the Interim Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Interim Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates in the Company’s Interim Financial Statements relate to revenue, acquired property and equipment, goodwill, right-of-use assets, impairment of long-lived assets, lease liabilities, general and professional liabilities, workers' compensation and healthcare claims included in accrued self-insurance liabilities and income taxes. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements — In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which requires the Company to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts. This guidance is effective for annual periods beginning after December 15, 2024, which will be the Company's fiscal year 2025, with early adoption permitted. The adoption is expected to enhance the Company's Notes to the Consolidated Financial Statements. The Company is currently evaluating the impact of the ASU on its Consolidated Financial Statements.
In November 2024, the FASB issued ASU 2024-03 "Disaggregation of Income Statement Expenses," which requires the Company to disaggregate key expense categories such as employee compensation, depreciation and intangible asset amortization within its financial statements. ASU 2024-03 is effective for annual periods beginning with the Company's fiscal year 2027, and interim periods within the Company's fiscal year 2028, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its Notes to the Consolidated Financial Statements.
In September 2025, the FASB issued ASU 2025-06 "Targeted Improvements to the Accounting for Internal-Use Software," which amends the accounting for and disclosure of software costs under the existing standards. The amendments clarify the requirement for capitalizing software costs. ASU 2025-06 is effective beginning with the Company's fiscal year 2028 for both interim and annual periods, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.
3. REVENUE AND ACCOUNTS RECEIVABLE
The Company's service revenue is derived primarily from providing healthcare services to its patients. Revenue is recognized when services are provided to patients at the amount that reflects the consideration that the Company expects to be entitled from patients and third-party payors, including Medicaid, Medicare and insurers (private and Medicare replacement plans), in exchange for providing patient care.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with its patients by payors. The Company has determined that disaggregating revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Revenue by Payor
The Company’s revenue is derived primarily from providing healthcare services to patients and is recognized on the date services are provided at amounts billable to individual patients, adjusted for estimates for variable consideration. For patients under reimbursement arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts or rates, adjusted for estimates for variable consideration, on a per patient, daily basis or as services are performed.
Revenue from the Medicare and Medicaid programs accounted for 69.5% and 69.6% of all service revenue for the three and nine months ended September 30, 2025, respectively, and 70.2% and 71.0% of all service revenue for the three and nine months ended September 30, 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 and nine months ended September 30, 2025 and 2024.
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Table of Contents | THE ENSIGN GROUP, INC. |
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Service revenue for the three and nine months ended September 30, 2025 and 2024 is summarized in the following tables:

| Three Months Ended September 30,
| 2025 |  | 2024
| Revenue |  | % of Revenue |  | Revenue |  | % of Revenue
Medicaid(1) | $ | 515,157 |  |  | 39.9 | % |  | $ | 425,642 |  |  | 39.6 | %
Medicare | 303,281 |  |  | 23.5 |  |  | 263,594 |  |  | 24.5 |
Medicaid — skilled | 78,450 |  |  | 6.1 |  |  | 65,907 |  |  | 6.1 |
Total Medicaid and Medicare | $ | 896,888 |  |  | 69.5 | % |  | $ | 755,143 |  |  | 70.2 | %
Managed care | 237,978 |  |  | 18.5 |  |  | 202,528 |  |  | 18.8 |
Private and other(2) | 154,913 |  |  | 12.0 |  |  | 118,421 |  |  | 11.0 |
SERVICE REVENUE | $ | 1,289,779 |  |  | 100.0 | % |  | $ | 1,076,092 |  |  | 100.0 | %
(1) Medicaid payor includes revenue for senior living operations.
(2) Private and other includes revenue for skilled services (private, Veteran Affairs and hospice payors), senior living and ancillary operations.

| Nine Months Ended September 30,
| 2025 |  | 2024 |  |
| Revenue |  | % of Revenue |  | Revenue |  | % of Revenue |  |  |  |
Medicaid(1) | $ | 1,454,845 |  |  | 39.6 | % |  | $ | 1,227,565 |  |  | 39.5 | % |  |  |  |
Medicare | 882,149 |  |  | 24.0 |  |  | 788,046 |  |  | 25.3 |  |  |  |  |
Medicaid — skilled | 223,208 |  |  | 6.0 |  |  | 192,185 |  |  | 6.2 |  |  |  |  |
Total Medicaid and Medicare | $ | 2,560,202 |  |  | 69.6 | % |  | $ | 2,207,796 |  |  | 71.0 | % |  |  |  |
Managed care | 694,690 |  |  | 18.9 |  |  | 581,654 |  |  | 18.7 |  |  |  |  |
Private and other(2) | 423,341 |  |  | 11.5 |  |  | 321,701 |  |  | 10.3 |  |  |  |  |
SERVICE REVENUE | $ | 3,678,233 |  |  | 100.0 | % |  | $ | 3,111,151 |  |  | 100.0 | % |  |  |  |
(1) Medicaid payor includes revenue for senior living operations. |  |  |  |
(2) Private and other includes revenue for skilled services (private, Veteran Affairs and hospice payors), senior living and ancillary operations. |  |  |  |

In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties was $6,626 and $18,982, respectively, for the three and nine months ended September 30, 2025 and $5,684 and $17,082, respectively, for the three and nine months ended September 30, 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 or contract assets as of September 30, 2025 and December 31, 2024, or activity during the three and nine months ended September 30, 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. Accounts receivable as of September 30, 2025 and December 31, 2024, is summarized in the following table:

| September 30, 2025 |  | December 31, 2024
Medicaid | $ | 266,048 |  |  | $ | 228,872 |
Managed care | 162,905 |  |  | 139,711 |
Medicare | 97,949 |  |  | 77,056 |
Private and other payors | 93,790 |  |  | 132,693 |
| $ | 620,692 |  |  | $ | 578,332 |
Less: allowance for doubtful accounts | (7,948) |  |  | (8,435) |
ACCOUNTS RECEIVABLE, NET | $ | 612,744 |  |  | $ | 569,897 |

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

4. COMPUTATION OF NET INCOME PER COMMON SHARE
Basic net income per share is computed by dividing income from operations attributable to stockholders of The Ensign Group, Inc. by the weighted average number of outstanding common shares for the period. The computation of diluted net income per share is similar to the computation of basic net income per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.
A reconciliation of the numerator and denominator used in the calculation of basic net income per common share follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| 2025 |  | 2024 |  | 2025 |  | 2024 |  |
NUMERATOR: |  |  |  |  |  |  |  |  |
Net income | $ | 83,911 |  |  | $ | 78,567 |  |  | $ | 248,730 |  |  | $ | 218,708 |  |  |
Less: net income attributable to noncontrolling interests | 67 |  |  | 123 |  |  | 213 |  |  | 422 |  |  |
Net income attributable to The Ensign Group, Inc. | $ | 83,844 |  |  | $ | 78,444 |  |  | $ | 248,517 |  |  | $ | 218,286 |  |  |
DENOMINATOR: |  |  |  |  |  |  |  |  |
Weighted average shares outstanding for basic net income per share | 57,382 |  |  | 56,776 |  |  | 57,214 |  |  | 56,553 |  |  |
Basic net income per common share: | $ | 1.46 |  |  | $ | 1.38 |  |  | $ | 4.34 |  |  | $ | 3.86 |  |  |

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

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| 2025 |  | 2024 |  | 2025 |  | 2024 |  |
NUMERATOR: |  |  |  |  |  |  |  |  |
Net income | $ | 83,911 |  |  | $ | 78,567 |  |  | $ | 248,730 |  |  | $ | 218,708 |  |  |
Less: net income attributable to noncontrolling interests | 67 |  |  | 123 |  |  | 213 |  |  | 422 |  |  |
Net income attributable to The Ensign Group, Inc. | $ | 83,844 |  |  | $ | 78,444 |  |  | $ | 248,517 |  |  | $ | 218,286 |  |  |
DENOMINATOR: |  |  |  |  |  |  |  |  |
Weighted average common shares outstanding | 57,382 |  |  | 56,776 |  |  | 57,214 |  |  | 56,553 |  |  |
Plus: incremental shares from assumed conversion (1) | 1,574 |  |  | 1,668 |  |  | 1,499 |  |  | 1,572 |  |  |
Adjusted weighted average common shares outstanding | 58,956 |  |  | 58,444 |  |  | 58,713 |  |  | 58,125 |  |  |
Diluted net income per common share: | $ | 1.42 |  |  | $ | 1.34 |  |  | $ | 4.23 |  |  | $ | 3.76 |  |  |

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 1,072 and 914 for the three and nine months ended September 30, 2025, respectively, and 400 and 858 for the three and nine months ended September 30, 2024, respectivel y.
5. FAIR VALUE MEASUREMENTS
The Company's financial assets include held-to-maturity investments carried at amortized cost basis of $148,735 and $138,600, of which $80,706 and $65,831 are designated to support long-term insurance subsidiary liabilities, as of September 30, 2025 and December 31, 2024, respectively. As of September 30, 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 September 30, 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.
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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 September 30, 2025 and December 31, 2024, the fair value of the investment funds was $72,381 and $56,049, respectively, which are derived using Level 2 inputs.
Additionally, the Company has other investments held at historical cost basis, which are not material, for which the fair value is derived using Level 3 inputs.
6. STANDARD BEARER
Standard Bearer's real estate portfolio consists of 142 of the Company's 148 owned real estate properties, of which 108 are operated and managed by the Company's independent subsidiaries and 35 are leased to and operated by third-party operators. Of those 35 operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.
During the nine months ended September 30, 2025, Standard Bearer added $228,874 of real estate assets associated with 15 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 under an existing lease arrangement from CareTrust REIT, Inc. (CareTrust). Of these additions, two s tand-alone skilled nursing operations are leased to third-party operators and the remaining additions are operated by the Company's independent subsidiaries. Refer to Note 7, Operation Expansions, for additional information.
Subsequent to September 30, 2025, Standard Bearer added approximately $65,000 of real estate assets associated with seven stand-alone skilled nursing operations, of which all were leased back to the Company's independent subsidiaries. Refer to Note 7, Operation Expansions, for additional information.
During the nine months ended September 30, 2024, Standard Bearer added $81,274 of real estate assets associated with seven stand-alone skilled nursing operations and two campus operations, all of which are operated by the Company's independent subsidiaries. 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 108 Standard Bearer independent real estate subsidiaries have entered into seven triple-net master lease agreements (collectively, the Standard Bearer Master Leases). The lease periods range from 15 to 19 years with three five-year renewal options beyond the initial term, on the same terms and conditions. The rent structure under the Standard Bearer Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero) or (2) 2.5%. In addition to rent, the independent subsidiaries are required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties; (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties. Intercompany rental revenue generated from Ensign affiliated operations was $27,634 and $78,294, respectively, for the three and nine months ended September 30, 2025 and $20,234 and $57,396, respectively, for the three and nine months ended September 30, 2024.
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Intercompany management agreement
Standard Bearer has no employees. The Service Center provides personnel and services to Standard Bearer pursuant to the management agreement between Standard Bearer and the Service Center. The management agreement provides for a base management fee that is equal to 5.0% of total rental revenue and an incentive management fee that is equal to 5.0% of funds from operations (FFO) and is capped at 1.0% of total rental revenue, for a total of 6.0%. Management fee generated between Standard Bearer and the Service Center for the three and nine months ended September 30, 2025 was $1,955 and $5,530, respectively. Management fees generated between Standard Bearer and the Service Center for the three and nine months ended September 30, 2024 was $1,466 and $4,199, respectively.
Intercompany debt arrangements
Standard Bearer obtains its funding through various sources including operating cash flows, access to debt arrangements and intercompany loans. The intercompany debt arrangements include mortgage loans and a credit facility to fund acquisitions and working capital needs. The interest rate under the credit facility is a base rate plus a margin ranging from 0.25% to 1.25% per annum or SOFR plus a margin ranging from 1.25% to 2.25% per annum.
In addition, as the Department of Housing and Urban Development (HUD) mortgage loans and promissory note are entered into by real estate subsidiaries of Standard Bearer, the interest expense incurred from these debts are included in Standard Bearer's segment income. Refer to Note 14, Debt, for additional information related to these debts.
Equity Instrument Denominated in the Shares of a Subsidiary
As part of the formation of Standard Bearer in 2022, the Company established the Standard Bearer Healthcare REIT, Inc. 2022 Omnibus Incentive Plan (Standard Bearer Equity Plan). The Company may grant stock options and restricted stock awards under the Standard Bearer Equity Plan to employees and management of Ensign's independent subsidiaries. These awards generally vest over a period of five years or upon the occurrence of certain prescribed events. The value of the stock options and restricted stock awards is tied to the value of the common stock of Standard Bearer, which is determined based on an independent valuation of Standard Bearer. The Company can also call the awards, generally upon employee termination. During the nine months ended September 30, 2025 and 2024, the Company did not grant any stock options or restricted shares under the Standard Bearer Equity Plan. During the nine months ended September 30, 2025 and 2024, there were no restricted stock awards vested for the periods.
The grant-date fair value of the awards is recognized as compensation expense over the relevant vesting periods, with a corresponding adjustment to noncontrolling interests. The grant value was determined based on an independent valuation of the subsidiary shares. For the three and nine months ended September 30, 2025, the Standard Bearer Equity Plan's share-based compensation expense was not material. There was no expense during the three and nine months ended September 30, 2024.
7. OPERATION EXPANSIONS
The focus of the Company's independent subsidiaries is to expand its operations through leases or acquisitions of real estate that are complementary to the current operations, accretive to the business, or otherwise advance the Company's strategy. The results of all independent subsidiaries are included in the Interim Financial Statements subsequent to the date of acquisition. Acquisitions are accounted for using the acquisition method of accounting. In connection with the new operations obtained through long-term leases, the Company did not acquire any material assets or assume any liabilities other than the tenant's post-assumption rights and obligations under the long-term lease. The Company also entered into a separate operations transfer agreement with each prior operator as part of each transaction. The Company's independent subsidiaries also enter into long-term leases that may include options to purchase the facilities. As a result, from time to time, an independent real estate subsidiary may acquire the property of facilities that have previously been operated under third-party leases.
2025 Expansions
During the nine months ended September 30, 2025, the Company expanded its operations with the addition of 28 stand-alone skilled nursing operations, five stand-alone senior living operations and one campus operation. These new operations added a total of 3,384 operational skilled nursing beds and 313 operational senior living units to be operated by the Company's independent subsidiaries.
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Subsequent to September 30, 2025, the Company expanded its operations with the addition of eight stand-alone skilled nursing operations. These new operations added 428 operational skilled nursing beds to be operated by the Company's independent subsidiaries.
2024 Expansions
During the nine months ended September 30, 2024, the Company expanded its operations with the addition of 24 stand-alone skilled nursing operations and two campus operations. One of the stand-alone skilled nursing operations includes a long-term acute care hospital. These new operations added a total of 2,565 operational skilled nursing beds and 202 operational senior living units operated by the Company's independent subsidiaries. Included within the operational skilled nursing beds are 43 long-term acute care beds. The Company also invested in new ancillary services that are complementary to its existing businesses.
8. BUSINESS SEGMENTS
The Company has two reportable segments: (1) skilled services, which includes the operation of skilled nursing facilities and rehabilitation therapy services and (2) Standard Bearer, which is comprised of selected real estate properties owned by Standard Bearer and leased to skilled nursing and senior living operators.
As of September 30, 2025, the skilled services segment includes 314 skilled nursing and 31 campus operations that provide both skilled nursing and rehabilitative care services and senior living services. The Company's Standard Bearer segment consists of 142 owned real estate properties.
The Company also reports an “All Other” category that includes results from its senior living operations, which includes 16 stand-alone senior living operations and the senior living operations at 31 campus operations that provide both skilled nursing and rehabilitative care services and senior living services. In addition, the "All Other" category includes mobile diagnostics, medical transportation, other real estate, other ancillary operations and the Service Center. Services included in the “All Other” category are insignificant individually and therefore do not constitute a reportable segment.
The Company’s reportable segments are significant operating segments that offer differentiated services. The segment structure reflects the Company's current operational and financial management and provides the best structure to maximize the quality of care and investment strategy provided, while maintaining financial discipline.
Segment income is defined as income before provision for income taxes, excluding gain or loss from sale of real estate, real estate insurance recoveries and impairment of long-lived assets. The Company's chief operating decision maker or CODM, who is the Chief Executive Officer, reviews segment income for each operating segment to evaluate performance and allocate capital resources. The CODM uses segment income to analyze actual results as part of operational planning and to decide whether to reinvest profits into the segments or into other parts of the Company, such as through acquisitions, to pay dividends or to recommend a stock repurchase program. The Company's CODM does not review assets by segment in his resource allocation and therefore assets by segment are not disclosed below.
Intercompany revenue is eliminated in consolidation, along with corresponding intercompany expenses. Included in segment income for Standard Bearer is expense for intercompany services provided by the Service Center as described in Note 6, Standard Bearer, as it is part of the CODM financial information.
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The following tables set forth financial information for the segments:

|  | Three Months Ended September 30, 2025
|  | Skilled Services |  | Standard Bearer |  |  |  |  |  | Total
Service revenue(1) |  | $ | 1,239,096 |  |  | $ | — |  |  |  |  |  |  | $ | 1,239,096 |
Rental revenue |  | — |  |  | 32,610 |  |  |  |  |  |  | 32,610 |
Segment revenue |  | $ | 1,239,096 |  |  | $ | 32,610 |  |  |  |  |  |  | $ | 1,271,706 |
Reconciliation of revenue: |  |  |  |  |  |  |  |  |  |
All other revenue(2) |  |  |  |  |  |  |  |  |  | 60,578 |
Elimination of intercompany revenue(3) |  |  |  |  |  |  |  |  |  | (35,879) |
TOTAL CONSOLIDATED REVENUE |  |  |  |  |  |  |  |  |  | $ | 1,296,405 |
Less: |  |  |  |  |  |  |  |  |  |
Other segment items(4) |  | 1,071,815 |  |  | 2,959 |  |  |  |  |  |  |
Depreciation and amortization |  | 14,155 |  |  | 9,709 |  |  |  |  |  |  |
Interest expense(5) |  | — |  |  | 10,320 |  |  |  |  |  |  |
Segment income |  | $ | 153,126 |  |  | $ | 9,622 |  |  |  |  |  |  | $ | 162,748 |
Reconciliation of profit or loss: |  |  |  |  |  |  |  |  |  |
All other not included in segment income |  |  |  |  |  |  |  |  |  | (56,148) |
INCOME BEFORE PROVISION FOR INCOME TAXES |  |  |  |  |  |  |  |  |  | $ | 106,600 |

(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 $57,377 of service revenue and $3,201 of rental revenue for the three months ended September 30, 2025, both of which include intercompany revenue that is eliminated in "Elimination of intercompany revenue".
(3) Elimination of intercompany revenue includes the elimination of intercompany rental revenue of $29,185 and intercompany service revenue of $6,694 for the three months ended September 30, 2025.
(4) Other segment items include 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 $35,879 during the three months ended September 30, 2025, which are eliminated in consolidation.
(5) Included in interest expense in Standard Bearer is interest from intercompany debt arrangements between Standard Bearer and The Ensign Group, Inc. of $9,090 during the three months ended September 30, 2025, which is eliminated in consolidation.
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|  | Three Months Ended September 30, 2024
|  | Skilled Services |  | Standard Bearer |  |  |  |  |  | Total
Service revenue(1) |  | $ | 1,033,113 |  |  | $ | — |  |  |  |  |  |  | $ | 1,033,113 |
Rental revenue |  | — |  |  | 24,429 |  |  |  |  |  |  | 24,429 |
Segment revenue |  | $ | 1,033,113 |  |  | $ | 24,429 |  |  |  |  |  |  | $ | 1,057,542 |
Reconciliation of revenue: |  |  |  |  |  |  |  |  |  |
All other revenue(2) |  |  |  |  |  |  |  |  |  | 51,144 |
Elimination of intercompany revenue(3) |  |  |  |  |  |  |  |  |  | (26,910) |
TOTAL CONSOLIDATED REVENUE |  |  |  |  |  |  |  |  |  | $ | 1,081,776 |
Less: |  |  |  |  |  |  |  |  |  |
Other segment items(4) |  | 893,083 |  |  | 2,420 |  |  |  |  |  |  |
Depreciation and amortization |  | 11,541 |  |  | 7,484 |  |  |  |  |  |  |
Interest expense(5) |  | — |  |  | 7,251 |  |  |  |  |  |  |
Segment income |  | $ | 128,489 |  |  | $ | 7,274 |  |  |  |  |  |  | $ | 135,763 |
Reconciliation of profit or loss: |  |  |  |  |  |  |  |  |  |
All other not included in segment income |  |  |  |  |  |  |  |  |  | (37,089) |
INCOME BEFORE PROVISION FOR INCOME TAXES |  |  |  |  |  |  |  |  |  | $ | 98,674 |

(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 $48,209 of service revenue and $2,935 of rental revenue for the three months ended September 30, 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 $21,680 and intercompany service revenue of $5,230 for the three months ended September 30, 2024.
(4) Other segment items include 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 $26,910 during the three months ended September 30, 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 $5,535 during the three months ended September 30, 2024, which is eliminated in consolidation.
15

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

|  | Nine Months Ended September 30, 2025 |  |
|  | Skilled Services |  | Standard Bearer |  |  |  |  |  | Total |  |
Service revenue(1) |  | $ | 3,536,226 |  |  | $ | — |  |  |  |  |  |  | $ | 3,536,226 |  |  |
Rental revenue |  | — |  |  | 92,479 |  |  |  |  |  |  | 92,479 |  |  |
Segment revenue |  | $ | 3,536,226 |  |  | $ | 92,479 |  |  |  |  |  |  | $ | 3,628,705 |  |  |
Reconciliation of revenue: |  |  |  |  |  |  |  |  |  |  |  |
All other revenue(2) |  |  |  |  |  |  |  |  |  | 170,336 |  |  |
Elimination of intercompany revenue(3) |  |  |  |  |  |  |  |  |  | (101,826) |  |  |
TOTAL CONSOLIDATED REVENUE |  |  |  |  |  |  |  |  |  | $ | 3,697,215 |  |  |
Less: |  |  |  |  |  |  |  |  |  |  |  |
Other segment items(4) |  | 3,048,047 |  |  | 8,331 |  |  |  |  |  |  |  |  |
Depreciation and amortization |  | 41,118 |  |  | 27,450 |  |  |  |  |  |  |  |  |
Interest expense(5) |  | — |  |  | 29,367 |  |  |  |  |  |  |  |  |
Segment income |  | $ | 447,061 |  |  | $ | 27,331 |  |  |  |  |  |  | $ | 474,392 |  |  |
Reconciliation of profit or loss: |  |  |  |  |  |  |  |  |  |  |  |
All other not included in segment income |  |  |  |  |  |  |  |  |  | (148,854) |  |  |
INCOME BEFORE PROVISION FOR INCOME TAXES |  |  |  |  |  |  |  |  |  | $ | 325,538 |  |  |

(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 $160,978 of service revenue and $9,358 of rental revenue for the nine months ended September 30, 2025, both of which include intercompany revenue that is eliminated in "Elimination of intercompany revenue".
(3) Elimination of intercompany revenue includes the elimination of intercompany rental revenue of $82,855 and intercompany service revenue of $18,971 for the nine months ended September 30, 2025.
(4) Other segment items include 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 $101,826 during the nine months ended September 30, 2025, which are eliminated in consolidation.
(5) Included in interest expense in Standard Bearer is interest from intercompany debt arrangements between Standard Bearer and The Ensign Group, Inc. of $25,153 during the nine months ended September 30, 2025, which is eliminated in consolidation.
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Table of Contents | THE ENSIGN GROUP, INC. |
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

|  | Nine Months Ended September 30, 2024
|  | Skilled Services |  | Standard Bearer |  |  |  |  |  | Total
Service revenue(1) |  | $ | 2,994,000 |  |  | $ | — |  |  |  |  |  |  | $ | 2,994,000 |
Rental revenue |  | — |  |  | 69,984 |  |  |  |  |  |  | 69,984 |
Segment revenue |  | $ | 2,994,000 |  |  | $ | 69,984 |  |  |  |  |  |  | $ | 3,063,984 |
Reconciliation of revenue: |  |  |  |  |  |  |  |  |  |
All other revenue(2) |  |  |  |  |  |  |  |  |  | 141,055 |
Elimination of intercompany revenue(3) |  |  |  |  |  |  |  |  |  | (76,806) |
TOTAL CONSOLIDATED REVENUE |  |  |  |  |  |  |  |  |  | $ | 3,128,233 |
Less: |  |  |  |  |  |  |  |  |  |
Other segment items(4) |  | 2,583,529 |  |  | 6,686 |  |  |  |  |  |  |
Depreciation and amortization |  | 32,988 |  |  | 21,479 |  |  |  |  |  |  |
Interest expense(5) |  | — |  |  | 19,927 |  |  |  |  |  |  |
Segment income |  | $ | 377,483 |  |  | $ | 21,892 |  |  |  |  |  |  | $ | 399,375 |
Reconciliation of profit or loss: |  |  |  |  |  |  |  |  |  |
All other not included in segment income |  |  |  |  |  |  |  |  |  | (119,039) |
INCOME BEFORE PROVISION FOR INCOME TAXES |  |  |  |  |  |  |  |  |  | $ | 280,336 |

(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 $132,175 of service revenue and $8,880 of rental revenue for the nine months ended September 30, 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 $61,782 and intercompany service revenue of $15,024 for the nine months ended September 30, 2024.
(4) Other segment items include 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 $76,806 during the nine months ended September 30, 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 $14,818 during the nine months ended September 30, 2024, which is eliminated in consolidation.

Service revenue by major payor source were as follows:

|  | Three Months Ended September 30, 2025
|  | Skilled Services |  |  |  |  |  | All Other (3) |  | Total Service Revenue |  | Revenue %
Medicaid(1) |  | $ | 501,722 |  |  |  |  |  |  | $ | 13,435 |  |  | $ | 515,157 |  |  | 39.9 | %
Medicare |  | 303,281 |  |  |  |  |  |  | — |  |  | 303,281 |  |  | 23.5 |
Medicaid-skilled |  | 78,450 |  |  |  |  |  |  | — |  |  | 78,450 |  |  | 6.1 |
Subtotal |  | $ | 883,453 |  |  |  |  |  |  | $ | 13,435 |  |  | $ | 896,888 |  |  | 69.5 | %
Managed care |  | 237,978 |  |  |  |  |  |  | — |  |  | 237,978 |  |  | 18.5 |
Private and other(2) |  | 117,665 |  |  |  |  |  |  | 37,248 |  |  | 154,913 |  |  | 12.0 |
TOTAL SERVICE REVENUE |  | $ | 1,239,096 |  |  |  |  |  |  | $ | 50,683 |  |  | $ | 1,289,779 |  |  | 100.0 | %

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

|  | Three Months Ended September 30, 2024
|  | Skilled Services |  |  |  |  |  | All Other (3) |  | Total Service Revenue |  | Revenue %
Medicaid(1) |  | $ | 416,190 |  |  |  |  |  |  | $ | 9,452 |  |  | $ | 425,642 |  |  | 39.6 | %
Medicare |  | 263,594 |  |  |  |  |  |  | — |  |  | 263,594 |  |  | 24.5 |
Medicaid-skilled |  | 65,907 |  |  |  |  |  |  | — |  |  | 65,907 |  |  | 6.1 |
Subtotal |  | $ | 745,691 |  |  |  |  |  |  | $ | 9,452 |  |  | $ | 755,143 |  |  | 70.2 | %
Managed care |  | 202,528 |  |  |  |  |  |  | — |  |  | 202,528 |  |  | 18.8 |
Private and other(2) |  | 84,894 |  |  |  |  |  |  | 33,527 |  |  | 118,421 |  |  | 11.0 |
TOTAL SERVICE REVENUE |  | $ | 1,033,113 |  |  |  |  |  |  | $ | 42,979 |  |  | $ | 1,076,092 |  |  | 100.0 | %

|  | Nine Months Ended September 30, 2025
|  | Skilled Services |  |  |  |  |  | All Other (3) |  |  |  | Total Service Revenue |  | Revenue %
Medicaid(1) |  | $ | 1,419,037 |  |  |  |  |  |  | $ | 35,808 |  |  |  |  | $ | 1,454,845 |  |  | 39.6 | %
Medicare |  | 882,149 |  |  |  |  |  |  | — |  |  |  |  | 882,149 |  |  | 24.0 |
Medicaid-skilled |  | 223,208 |  |  |  |  |  |  | — |  |  |  |  | 223,208 |  |  | 6.0 |
Subtotal |  | $ | 2,524,394 |  |  |  |  |  |  | $ | 35,808 |  |  |  |  | $ | 2,560,202 |  |  | 69.6 | %
Managed care |  | 694,690 |  |  |  |  |  |  | — |  |  |  |  | 694,690 |  |  | 18.9 |
Private and other(2) |  | 317,142 |  |  |  |  |  |  | 106,199 |  |  |  |  | 423,341 |  |  | 11.5 |
TOTAL SERVICE REVENUE |  | $ | 3,536,226 |  |  |  |  |  |  | $ | 142,007 |  |  |  |  | $ | 3,678,233 |  |  | 100.0 | %

|  | Nine Months Ended September 30, 2024
|  | Skilled Services |  |  |  |  |  | All Other (3) |  |  |  | Total Service Revenue |  | Revenue %
Medicaid(1) |  | $ | 1,201,435 |  |  |  |  |  |  | $ | 26,130 |  |  |  |  | $ | 1,227,565 |  |  | 39.5 | %
Medicare |  | 788,046 |  |  |  |  |  |  | — |  |  |  |  | 788,046 |  |  | 25.3 |
Medicaid-skilled |  | 192,185 |  |  |  |  |  |  | — |  |  |  |  | 192,185 |  |  | 6.2 |
Subtotal |  | $ | 2,181,666 |  |  |  |  |  |  | $ | 26,130 |  |  |  |  | $ | 2,207,796 |  |  | 71.0 | %
Managed care |  | 581,654 |  |  |  |  |  |  | — |  |  |  |  | 581,654 |  |  | 18.7 |
Private and other(2) |  | 230,680 |  |  |  |  |  |  | 91,021 |  |  |  |  | 321,701 |  |  | 10.3 |
TOTAL SERVICE REVENUE |  | $ | 2,994,000 |  |  |  |  |  |  | $ | 117,151 |  |  |  |  | $ | 3,111,151 |  |  | 100.0 | %

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

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

9. PROPERTY AND EQUIPMENT - NET
Property and equipment, net consists of the following:

| September 30, 2025 |  | December 31, 2024
Land | $ | 204,995 |  |  | $ | 162,873 |
Buildings and improvements | 1,151,819 |  |  | 933,790 |
Leasehold improvements | 244,666 |  |  | 212,603 |
Equipment | 463,770 |  |  | 396,018 |
Furniture and fixtures | 4,719 |  |  | 4,349 |
Construction in progress | 62,326 |  |  | 41,209 |
| $ | 2,132,295 |  |  | $ | 1,750,842 |
Less: accumulated depreciation | (533,894) |  |  | (459,488) |
PROPERTY AND EQUIPMENT, NET | $ | 1,598,401 |  |  | $ | 1,291,354 |

Real Estate Acquisitions
A majority of the real estate properties were acquired by subsidiaries of Standard Bearer, as detailed in Note 6. Standard Bearer. The table below presents the allocation of the purchase price for real estate purchases during the nine months ended September 30, 2025 and 2024:

| Nine Months Ended September 30,
| 2025 |  | 2024 |  |
Land | $ | 42,122 |  |  | $ | 17,909 |  |  |
Building and improvements | 192,550 |  |  | 62,428 |  |  |
Equipment, furniture, and fixtures | 5,274 |  |  | 1,898 |  |  |
Assembled occupancy | 354 |  |  | 515 |  |  |
Goodwill | — |  |  | 372 |  |  |
Other indefinite-lived intangible assets | — |  |  | 262 |  |  |
TOTAL ACQUISITIONS | $ | 240,300 |  |  | $ | 83,384 |  |  |

10. INTANGIBLE ASSETS - NET

|  |  |  | September 30, 2025 |  | December 31, 2024
|  | Weighted Average Life (Years) |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Gross Carrying Amount |  | Accumulated Amortization |  |  |  | Gross Carrying Amount |  | Accumulated Amortization |  |
Intangible Assets |  |  |  |  | Net |  |  |  | Net
Assembled occupancy |  | 0.4 |  | $ | 2,345 |  |  | $ | (2,345) |  |  | $ | — |  |  | $ | 1,991 |  |  | $ | (1,316) |  |  | $ | 675 |
Facility trade name |  | 30.0 |  | 733 |  |  | (480) |  |  | 253 |  |  | 733 |  |  | (462) |  |  | 271 |
Customer relationships |  | 18.4 |  | 4,582 |  |  | (3,059) |  |  | 1,523 |  |  | 4,582 |  |  | (2,902) |  |  | 1,680 |
TOTAL |  |  |  | $ | 7,660 |  |  | $ | (5,884) |  |  | $ | 1,776 |  |  | $ | 7,306 |  |  | $ | (4,680) |  |  | $ | 2,626 |

During the three and nine months ended September 30, 2025, amortization expense was $340 and $1,891, respectively, of which $273 and $687 was related to the amortization of right-of-use assets, respectively. Amortization expense was $598 and $1,535, respectively, of which $303 and $909 was related to the amortization of right-of-use assets for the three and nine months ended September 30, 2024, respectively.
19

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

Estimated amortization expense for each of the years ending December 31 is as follows:

Year |  | Amount
2025 (remainder) |  | $ | 61 |
2026 |  | 234 |
2027 |  | 234 |
2028 |  | 234 |
2029 |  | 234 |
2030 |  | 234 |
Thereafter |  | 545 |
|  | $ | 1,776 |

Other indefinite-lived intangible assets consist of the following:

| September 30, 2025 |  | December 31, 2024
Trade name | $ | 889 |  |  | $ | 889 |
Medicare and Medicaid licenses | 3,777 |  |  | 3,777 |
TOTAL | $ | 4,666 |  |  | $ | 4,666 |

11. GOODWILL
Goodwill is subject to annual testing for impairment during the fourth quarter of each year. In addition, goodwill is tested for impairment if events occur or circumstances indicate that its carrying value may not be recoverable. There were no indicators of goodwill impairment noted during the three and nine months ended September 30, 2025. The Company anticipates that the majority of goodwill recognized will be fully deductible for tax purposes as of September 30, 2025. Provided that goodwill corresponds to the acquisition of a business and not merely the acquisition of real estate property, the Company's Standard Bearer segment appropriately does not carry a goodwill balance. There were no activities in goodwill during the nine months ended September 30, 2025. The following table represents goodwill value by the skilled services segment and "all other" category as of September 30, 2025 and December 31, 2024:

| Skilled Services |  |  |  | All Other |  | Total
Goodwill | $ | 88,626 |  |  |  |  | $ | 9,355 |  |  | $ | 97,981 |

12. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:

| September 30, 2025 |  | December 31, 2024
Quality assurance fee | $ | 16,548 |  |  | $ | 12,667 |
Refunds, deferred revenue and advances | 85,490 |  |  | 75,573 |
Cash held in trust for patients | 7,761 |  |  | 6,370 |
Dividends payable | 3,619 |  |  | 3,589 |
Property taxes | 17,133 |  |  | 15,400 |
Accrued litigation (Note 19) | 12,000 |  |  | — |
Other | 17,491 |  |  | 18,458 |
OTHER ACCRUED LIABILITIES | $ | 160,042 |  |  | $ | 132,057 |

Quality assurance fee represents the aggregate of amounts payable to various states that have a mandated fee based on patient days or licensed beds. Refunds, deferred revenue and advances consists of liabilities related to duplicate payments and credit balances from various payor sources, as well as payments received from residents in advance of services provided. Cash held in trust for patients reflects monies received from or on behalf of patients. Maintaining a trust account for patients is a regulatory requirement and, while the trust assets offset the liabilities, the Company assumes a fiduciary responsibility for these funds. The cash balance related to this liability is included in other current assets in the condensed consolidated balance sheets.
20

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

13. INCOME TAXES
The Company recorded income tax expense of $76,808 and $61,628 during the nine months ended September 30, 2025 and 2024, respectively, or 23.6% of earnings before income taxes for the nine months ended September 30, 2025, compared to 22.0% for the nine months ended September 30, 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 nine months ended September 30, 2025 and 2024.
On July 4, 2025, the One Big Beautiful Bill (OBBB) was enacted in the U.S. The OBBB includes provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act and changes to certain U.S. corporate tax provisions. These changes include 100% bonus depreciation for capital expenditures incurred after January 19, 2025, and full expensing of domestic research and experimental expenditures. FASB ASC Topic 740, Income Taxes, requires the effects of tax law changes to be recognized in the period of enactment. The Company has reflected the impact of the enacted provisions, primarily affecting deferred tax liability and income tax receivable balances, in its condensed consolidated balance sheets. The Company does not anticipate that these provisions will affect its current period income tax expense or its effective tax rate for 2025.
14. DEBT
Debt consists of the following:

| September 30, 2025 |  | December 31, 2024
Mortgage loans and promissory note | $ | 145,388 |  |  | $ | 148,438 |
Less: current maturities | (4,191) |  |  | (4,086) |
Less: debt issuance costs, net | (2,640) |  |  | (2,767) |
LONG-TERM DEBT LESS CURRENT MATURITIES | $ | 138,557 |  |  | $ | 141,585 |

Credit Facility with a Lending Consortium Arranged by Truist
The Company maintains a revolving credit facility between the Company and its independent subsidiaries, including Standard Bearer as co-borrowers, and Truist Securities (Truist) (the Credit Facility) with a revolving line of credit of up to $600,000 in aggregate principal amount with a maturity date of April 8, 2027. Borrowings are supported by a lending consortium arranged by Truist. The interest rates applicable to loans under the Credit Facility are, at the Company's option, equal to either a base rate plus a margin ranging from 0.25% to 1.25% per annum or SOFR plus a margin ranging from 1.25% to 2.25% per annum, based on the Consolidated Total Net Debt to Consolidated EBITDA ratio (as defined in the Credit Facility). In addition, there is a commitment fee on the unused portion of the commitments that ranges from 0.20% to 0.40% per annum, depending on the Consolidated Total Net Debt to Consolidated EBITDA ratio.
Borrowings made under the Credit Facility are guaranteed, jointly and severally, by certain of the Company’s wholly-owned subsidiaries, and are secured by a pledge of stock of the Company's material independent subsidiaries as well as a first lien on substantially all of such independent subsidiaries' personal property. The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. Under the terms of the Credit Facility, the Company must comply with financial maintenance covenants to be tested quarterly, consisting of (i) a maximum consolidated total net debt to consolidated EBITDA ratio (which shall not be greater than 3.75:1.00; provided that if the aggregate consideration for approved acquisitions in a six month period is greater than $50,000, then the ratio can be increased at the election of the Company with notice to the administrative agent to 4.25:1.00 for the first fiscal quarter and the immediately following three fiscal quarters), and (ii) a minimum interest/rent coverage ratio (which cannot be less than 1.50:1.00). As of September 30, 2025, there was no outstanding debt under the Credit Facility. The Company was in compliance with all loan covenants as of September 30, 2025.
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Table of Contents | THE ENSIGN GROUP, INC. |
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Mortgage Loans and Promissory Note
As of September 30, 2025, the Company has 23 subsidiaries that have mortgage loans insured with HUD in the aggregate amount of $144,322, which subjects these subsidiaries to HUD oversight and periodic inspections. The mortgage loans bear effective interest rates in a range of 3.1% to 4.2%, including fixed interest rates in a range of 2.4% to 3.3% per annum. In addition to the interest rate, the Company incurs other fees for HUD placement, including, but not limited to audit fees. Amounts borrowed under the mortgage loans may be prepaid, subject to prepayment fees based on the principal balance on the date of prepayment. For the majority of the loans, during the first three years, the prepayment fee is 10.0% and is reduced by 3.0% in the fourth year of the loan and reduced by 1.0% per year for years five through ten of the loan. There is no prepayment penalty after year ten. The terms for all the mortgage loans are 25 to 35 years.
In addition to the HUD mortgage loans above, the Company has a promissory note of $1,066 that bears a fixed interest rate of 5.3% per annum and has a term of 12 years. The note, which was assumed as part of an acquisition, is secured by the real property comprising the facility and the rent, issues and profits thereof, as well as all personal property used in the operation of the facility.

Off-Balance Sheet Arrangements
As of September 30, 2025 and December 31, 2024, the Company had approximately $7,402 and $27,893, respectively, 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 September 30, 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. OPTIONS AND AWARDS
Stock-based compensation expense consists of stock-based payment awards made to employees and directors, including employee stock options and restricted stock awards, based on estimated fair values. As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2025 and 2024 was based on awards expected to vest, it has been reduced for estimated forfeitures. The Company estimates forfeitures at the time of grant and, if necessary, revises the estimate in subsequent periods if actual forfeitures differ.
The Company has one stock incentive plan, the Amended and Restated 2022 Omnibus Incentive Plan (the Amended and Restated Plan), pursuant to which grants of the Company's securities may currently be made. During the second quarter of 2025, the Company’s stockholders approved the Amended and Restated Plan, which increased the total number of shares authorized for issuance under the 2022 Omnibus Incentive Plan (the Predecessor Plan). Including the shares rolled over from the Predecessor Plan, the Amended and Restated Plan provides for the issuance of 4,231 shares of common stock. The number of shares available to be issued under the Amended and Restated Plan will be reduced by (i) one share for each share that relates to an option or stock appreciation right award and (ii) two 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 three equal annual installments, or the length of the term if less than three years, on the completion of each year of service measured from the grant date. All other options generally vest over five years at 20% per year on the anniversary of the grant date. Options expire ten years from the date of grant. At September 30, 2025, the total number of shares available for issuance under the Amended and Restated Plan was 3,724.
The Company uses the Black-Scholes option-pricing model to recognize the value of stock-based compensation expense for stock option awards. Determining the appropriate fair-value model and calculating the fair value of stock option awards at the grant date requires judgment, including estimating stock price volatility, expected option life, and forfeiture rates. The fair-value of the restricted stock awards at the grant date is based on the market price on the grant date, adjusted for forfeiture rates. The Company develops estimates based on historical data and market information, which can change significantly over time.
Stock Options
The Company used the following assumptions for stock options granted during the three months ended September 30, 2025 and 2024:
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Grant Year |  | Options Granted |  | Weighted Average Risk-Free Rate |  | Expected Life |  | Weighted Average Volatility |  |  |  | Weighted Average Dividend Yield |  |
2025 |  | 190 |  | 4.0% |  | 6.2 years |  | 39.1% |  |  |  | 0.2% |  |
2024 |  | 112 |  | 3.8% |  | 6.2 years |  | 40.3% |  |  |  | 0.2% |  |

The Company used the following assumptions for stock options granted during the nine months ended September 30, 2025 and 2024:

Grant Year |  | Options Granted |  | Weighted Average Risk-Free Rate |  | Expected Life |  | Weighted Average Volatility |  | Weighted Average Dividend Yield
2025 |  | 517 |  | 4.1% |  | 6.2 years |  | 39.3% |  | 0.2%
2024 |  | 466 |  | 4.2% |  | 6.1 years |  | 40.7% |  | 0.2%

For the nine months ended September 30, 2025 and 2024, the following represents the exercise price and fair value displayed at grant date for stock option grants:

Grant Year |  | Granted |  | Weighted Average Exercise Price |  | Weighted Average Fair Value of Options
2025 |  | 517 |  | $ | 149.08 |  |  | $ | 66.56 |
2024 |  | 466 |  | $ | 127.07 |  |  | $ | 57.81 |

The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the nine months ended September 30, 2025 and 2024 and therefore, the intrinsic value was $0 at the date of grant.
The following table represents the employee stock option activity during the nine months ended September 30, 2025:

| Number of Options Outstanding |  | Weighted Average Exercise Price |  | Number of Options Vested |  | Weighted Average Exercise Price of Options Vested
January 1, 2025 | 3,987 |  |  | $ | 78.84 |  |  | 1,895 |  |  | $ | 52.64 |
Granted | 517 |  |  | 149.08 |  |  |  |  |
Forfeited | (46) |  |  | 107.63 |  |  |  |  |
Exercised | (455) |  |  | 49.93 |  |  |  |  |
September 30, 2025 | 4,003 |  |  | $ | 90.87 |  |  | 1,928 |  |  | $ | 62.74 |

The aggregate intrinsic value of options outstanding, vested, expected to vest and exercised as of September 30, 2025 and December 31, 2024 is as follows:

Options |  | September 30, 2025 |  | December 31, 2024 |  |
Outstanding |  | $ | 327,883 |  |  | $ | 219,309 |  |  |
Vested |  | 212,109 |  |  | 152,011 |  |  |
Expected to vest |  | 108,579 |  |  | 63,243 |  |  |

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 nine months ended September 30, 2025 and 2024 was $40,633 and $34,971, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2025 and 2024 was $44,962 and $50,840, respectively.
Restricted Stock Awards
The Company granted 43 and 177 restricted stock awards during the three and nine months ended September 30, 2025, respectively. The Company granted 29 and 116 restricted stock awards during the three and nine months ended September 30, 2024, respectively. All awards were granted at an issue price of $0 and generally vest over five years. The fair value per share of restricted awards granted during the nine months ended September 30, 2025 and 2024 ranged from $126.34 to $169.24 and $116.65 to $146.37, respectively. The fair value per share includes quarterly stock awards to non-employee directors. Included in the restricted stock award grants are $8,003 and $6,165 of annual bonuses that were settled in vested restricted stock awards in the first quarter of 2025 and 2024, respectively.
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A summary of the status of the Company's non-vested restricted stock awards as of September 30, 2025 and changes during the nine months ended September 30, 2025 is presented below:

| Non-Vested Restricted Awards |  | Weighted Average Grant Date Fair Value
Nonvested at January 1, 2025 | 435 |  |  | $ | 102.71 |
Granted | 177 |  |  | 141.85 |
Vested | (195) |  |  | 104.05 |
Forfeited | (9) |  |  | 107.92 |
Nonvested at September 30, 2025 | 408 |  |  | $ | 119.62 |

During the three and nine months ended September 30, 2025, the Company granted 4 and 11 automatic quarterly stock awards, respectively, to non-employee directors for their service on the Company's board of directors. The fair value per share of these stock awards ranged from $129.09 to $141.18 based on the market price on the grant date.
Stock-based compensation expense
Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the three and nine months ended September 30, 2025 and 2024 was as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024 |  |
Stock-based compensation expense related to stock options | $ | 8,361 |  |  | $ | 5,699 |  |  | $ | 22,568 |  |  | $ | 16,205 |  |  |
Stock-based compensation expense related to restricted stock awards | 3,999 |  |  | 2,883 |  |  | 11,162 |  |  | 8,546 |  |  |
Stock-based compensation expense related to restricted stock awards to non-employee directors | 508 |  |  | 595 |  |  | 1,457 |  |  | 1,635 |  |  |
TOTAL | $ | 12,868 |  |  | $ | 9,177 |  |  | $ | 35,187 |  |  | $ | 26,386 |  |  |

In future periods, the Company expects to recognize approximately $94,617 and $42,557 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of September 30, 2025. Future stock-based compensation expense will be recognized over 3.7 weighted average years for both unvested options and restricted stock awards. There were 2,075 unvested and outstanding options as of September 30, 2025, of which 1,916 options are expected to vest. The weighted average contractual life for options outstanding, vested and expected to vest as of September 30, 2025 was 6.7 years.
16. LEASES
The Company leases from CareTrust real property associated with 104 independent skilled nursing and senior living facilities used in the Company’s operations under eight “triple-net” master lease agreements (collectively, the Master Leases), which range in terms from 13 to 20 years. At the Company’s option, the Master Leases may be extended for two or three five-year 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. In the third quarter of 2025, the Company added eight operations to an existing Master Lease and amended the initial term to 15 years. As a result, the total lease liabilities and right-of-use assets increased by $124,761 to reflect the new lease obligations.
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.
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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 zero) or (2) 2.5%. 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. Total rent expense under the Master Leases was approximately $18,800 and $52,830 for the three and nine months ended September 30, 2025, respectively, and $17,635 and $51,707 for the three and nine months ended September 30, 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 September 30, 2025.
The Company leases facilities where its independent subsidiaries operate and certain administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from 15 to 20 years. Most of these leases contain renewal options, certain of which involve rent increases.
The Company's 102 independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases with CareTrust, are operated under 18 separate Master Leases. In the first quarter of 2025, the Company entered into one new Master Lease to add six stand-alone skilled nursing facilities operated by the Company's independent subsidiaries with an initial term of 15 years. The new Master Lease increased the lease liabilities and right-of-use assets by $57,961 to reflect the new lease obligations. In the second quarter of 2025, the Company entered into two new Master Lease to add four stand-alone skilled nursing facilities operated by the Company's independent subsidiaries with an initial term of 15 years. The new Master Lease increased the lease liabilities and right-of-use assets by $52,753 to reflect the new lease obligations. In the third quarter of 2025, the Company entered into one new Master Lease to add two stand-alone skilled nursing facilities operated by the Company's independent subsidiaries with an initial term of 14 years. The new Master Lease increased the lease liabilities and right-of-use assets by $6,833 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 an event of default under several of the Company’s leases, master lease agreements and debt financing instruments. In addition, other potential defaults related to an individual facility may cause a default of an entire master lease portfolio and could trigger cross-default provisions in the Company’s outstanding debt arrangements and other leases. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.
The components of operating lease expense are as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| 2025 |  | 2024 |  | 2025 |  | 2024 |  |
Rent - cost of services(1) | $ | 61,528 |  |  | $ | 54,792 |  |  | $ | 175,799 |  |  | $ | 159,940 |  |  |
Cost of services(2) | 6,787 |  |  | 6,344 |  |  | 19,827 |  |  | 17,763 |  |  |
General and administrative expense | 195 |  |  | 179 |  |  | 608 |  |  | 513 |  |  |
Depreciation and amortization(3) | 273 |  |  | 303 |  |  | 687 |  |  | 909 |  |  |
| $ | 68,783 |  |  | $ | 61,618 |  |  | $ | 196,921 |  |  | $ | 179,125 |  |  |

(1)Rent - cost of services includes deferred rent expense adju stments of $225 and $632 for the three and nine months ended September 30, 2025, respectively, and $205 and $590 for the three and nine months ended September 30, 2024, respectively. Additionally, rent - cost of services includes other variable lease costs such as CPI increases and short-term leases of $4,922 and $13,560 for the three and nine months ended September 30, 2025, respectively, and $3,668 and $10,025 for the three and nine months ended September 30, 2024, respectively.
(2)Cost of services includes variable lease costs consisting of property taxes and insurance.
(3)Depreciation and amortization is related to the amortization of favorable and direct lease costs.
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Future minimum lease payments for all third-party leases as of September 30, 2025 are as follows:

Year |  | Amount
2025 (remainder) |  | $ | 58,013 |
2026 |  | 232,010 |
2027 |  | 231,598 |
2028 |  | 230,640 |
2029 |  | 225,219 |
2030 |  | 220,897 |
Thereafter |  | 1,818,251 |
TOTAL LEASE PAYMENTS |  | $ | 3,016,628 |
Less: present value adjustment |  | (1,002,865) |
PRESENT VALUE OF TOTAL LEASE LIABILITIES |  | $ | 2,013,763 |
Less: current lease liabilities |  | (110,817) |
LONG-TERM OPERATING LEASE LIABILITIES |  | $ | 1,902,946 |

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 September 30, 2025, the weighted average remaining lease term is 14.0 years and the weighted average discount rate used to determine the operating lease liabilities is 6.3%.
Subsequent to September 30, 2025, the Company expanded its operations through a long-term lease with the addition of one stand-alone skilled nursing operation. The aggregate impact to the carrying value of lease liabilities and right-of-use assets related to the long-term lease is estimated to be $10,896.
Lessor Activities
The Company leases 36 of its owned real estate properties to third-party operators, of which 32 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 14 to 16 years.
In the second quarter of 2025, the Company entered into two lease agreements with a separate third-party operator for one skilled nursing and one senior living operation, both with initial lease terms of 15 years. In the third quarter of 2025, the Company entered into one lease agreement with a separate third-party operator for one skilled nursing operation with an initial lease term of 8 years.
Total rental income from all third-party sources for the three and nine months ended September 30, 2025 and 2024 is as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| 2025 |  | 2024 |  | 2025 |  | 2024 |  |
Pennant(1) | $ | 4,084 |  |  | $ | 3,821 |  |  | $ | 12,288 |  |  | $ | 11,465 |  |  |
Other third-party(2) | 2,542 |  |  | 1,863 |  |  | 6,694 |  |  | 5,617 |  |  |
TOTAL | $ | 6,626 |  |  | $ | 5,684 |  |  | $ | 18,982 |  |  | $ | 17,082 |  |  |

(1) Pennant rental income includes variable rent such as property taxes of $274 and $854 during the three and nine months ended September 30, 2025 and $308 and $940 for the three and nine months ended September 30, 2024.
(2) Other third-party includes rental revenue associated with the Company's subleases to third parties of $1,116 and $3,339 for the three and nine months ended September 30, 2025, respectively, and $1,089 and $3,258 for the three and nine months ended September 30, 2024, respectively.
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Future annual rental income for all third-party leases as of September 30, 2025 were as follows:

Year |  | Amount(1)
2025 (remainder) |  | $ | 6,871 |
2026 |  | 26,977 |
2027 |  | 26,399 |
2028 |  | 26,071 |
2029 |  | 25,960 |
2030 |  | 24,907 |
Thereafter |  | 122,114 |
TOTAL |  | $ | 259,299 |

(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of September 30, 2025.
17. DEFINED CONTRIBUTION PLANS
The Company has a 401(k) defined contribution plan (the 401(k) Plan), whereby eligible employees may contribute up to 90% of their annual basic earnings, subject to applicable annual Internal Revenue Code limits. Additionally, the 401(k) Plan provides for discretionary matching contributions (as defined in the 401(k) Plan) by the Company.
The Company has a non-qualified deferred compensation plan (DCP), whereby 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 100% of their eligible bonuses. Additionally, the DCP allows for the employee deferrals to be deposited into a rabbi trust and the funds are generally invested in individual variable life insurance contracts owned by the Company that are specifically designed to fund savings plans of this nature. The Company paid for related administrative costs, which were not significant during the three and nine months ended September 30, 2025 and 2024.
As of September 30, 2025 and December 31, 2024, the Company accrued $75,933 and $63,051, respectively, as long term deferred compensation in other long term liabilities on the condensed consolidated balance sheets. Cash surrender value of the contracts is based on investment funds that shadow the investment allocations specified by participants in the deferred compensation plan. Refer to Note 5, Fair Value Measurements for more information on the funds.
For the three and nine months ended September 30, 2025, the Company recorded gains related to its DCP of $3,048 and $7,248, respectively, which is included in other income, net, and recorded offsetting expenses of $3,184 and $7,528, respectively, which is allocated between cost of services and general and administrative expenses.
For the three and nine months ended September 30, 2024, the Company recorded gains related to its DCP of $3,175 and $6,096, respectively, which is included in other income, net, and recorded offsetting expenses of $3,294 and $6,410, respectively, which is allocated between cost of services and general and administrative expenses.
18. SELF INSURANCE LIABILITIES
The Company is partially self-insured for general and professional liability claims up to a base amount per claim (the self-insured retention) with an aggregate, one-time deductible above this limit. Losses beyond these amounts are insured through third-party policies with coverage limits per claim, per location and on an aggregate basis for the Company. The combined self-insured retention for the Company's independent subsidiaries in California is $1,000 per claim ($750 if an enforceable arbitration agreement applies), subject to an additional one-time deductible of $3,139. For the independent subsidiaries not in California, the self-insured claim is $750 per claim ($650 if an enforceable arbitration agreement applies), subject to an additional one-time, deductible of $4,600. For all independent subsidiaries, except those located in Colorado, the third-party coverage above these limits is $1,000 per claim, $3,000 per operation, with a $10,000 blanket aggregate limit and an additional state-specific aggregate where required by state law. In Colorado, the third-party coverage above these limits is $1,000 per claim and $3,000 per operation, which is independent of the aforementioned blanket aggregate limits that apply outside of Colorado.
The majority of the self-insured retention and deductible limits for general and professional liabilities and workers' compensation liabilities are self-insured through the captive insurance subsidiary, the related assets and liabilities of which are included in the accompanying condensed consolidated balance sheets. The captive insurance subsidiary is subject to certain statutory requirements as an insurance provider.
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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 $625 per occurrence. In Texas, the independent subsidiaries have elected non-subscriber status for workers’ compensation claims and the Company has purchased individual stop-loss coverage that insures individual claims that exceed $750 per occurrence. The Company’s independent subsidiaries in all other states, with the exception of Washington, are under a loss sensitive plan that insures individual claims that exceed $350 per occurrence. In the state of Washington, the Company is self-insured and has purchased individual specific excess insurance coverage that insures individual claims that exceed $500 per occurrence. For all of the self-insured plans and retention, the Company accrues amounts equal to the estimated costs to settle open claims, as well as an estimate of the cost of claims that have been incurred but not reported. The Company uses actuarial valuations to estimate the liability based on historical experience and industry information.
The Company self-funds medical (including prescription drugs) and dental healthcare benefits for the majority of its employees. The Company is fully liable for all financial and legal aspects of these benefit plans. To protect itself against loss exposure with this policy, the Company has purchased individual stop-loss insurance coverage that insures individual claims that exceed $525 for each covered person for fiscal year 2025.
The following table represents the Company's self-insurance insurance liabilities, on an undiscounted basis, inclusive of anticipated insurance recoveries, as of September 30, 2025 and December 31, 2024:

| September 30, 2025 |  | December 31, 2024
Accrued general liability and professional malpractice liabilities | $ | 177,814 |  |  | $ | 160,149 |
Accrued workers’ compensation liabilities | 40,044 |  |  | 37,291 |
Accrued health benefits | 16,642 |  |  | 14,312 |
TOTAL SELF-INSURANCE LIABILITIES | $ | 234,500 |  |  | $ | 211,752 |
Less: current self-insurance liabilities | 73,854 |  |  | 67,331 |
LONG-TERM SELF-INSURANCE LIABILITIES | $ | 160,646 |  |  | $ | 144,421 |

The anticipated insurance recoveries included in the self-insurance liabilities are presented gross rather than net with the corresponding asset of $17,572 and $17,741, as of September 30, 2025 and December 31, 2024, respectively, included in Restricted and other assets on the consolidated balance sheets.
The Company believes that adequate provision has been made in the Interim Financial Statements for liabilities that may arise out of patient care, workers’ compensation, healthcare benefits and related services provided to date.

19. COMMITMENTS AND CONTINGENCIES
Indemnities — From time to time, the Company enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar amount. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, because no claims have been asserted, no liabilities have been recorded for these obligations on the Company’s condensed consolidated balance sheets for any of the periods presented.
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Litigation and Regulatory Matters — The Company and its independent subsidiaries are party to various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of business. Such claims may be related to, but are not limited to, the Health Insurance Portability and Accountability Act of 1996, alleged Medicare or Medicaid false claims, qui tam or "whistleblower" provisions of the False Claims Act and/or the Anti-Kickback Statute, alleged violations of state and federal wage and hour laws, environmental matters, investigations, examinations, audits and surveys or other claims in connection with the delivery of healthcare and non-healthcare services. These claims may come from a variety of governmental agencies, including but not limited to, the following federal agencies: U.S. Department of Health and Human Services (HHS), including the Centers for Disease Control and Prevention (CDC), Centers for Medicare and Medicaid Services (CMS), Office for Civil Rights (OCR) and Office of Inspector General (OIG); U.S. Department of Justice (DOJ); Occupational Safety and Health Administration (OHSA), U.S. Equal Employment Opportunity Commission (EEOC); National Labor Relations Board (NLRB); U.S. Department of Labor (DOL); U.S. Department of Housing and Urban Development (HUD); U.S. Department of Veterans Affairs (VA); and Environmental Protection Agency (EPA). In addition to these federal agencies, there are also a variety of state and local authorities with the ability to bring claims against our independent subsidiaries.
The Company and its independent subsidiaries are also subject to requests for information and investigations by other state and federal governmental entities (e.g., Offices of the Attorney General and Offices of the Inspector General). The Company cannot predict or provide any assurance as to the possible outcome of any inquiry, investigation or related litigation. If any such inquiry, investigation or related litigation were to proceed, and the Company and its independent subsidiaries are subjected to, alleged to be liable for, or agree to a settlement of, claims or obligations under federal Medicare statutes, the FCA, or similar state and federal statutes and related regulations, or if the Company or its independent subsidiaries are alleged or found to be liable on theories of general or professional negligence or wage and hour violations, the Company's business, financial condition and results of operations and cash flows could be materially and adversely affected and its stock price could be adversely impacted. Among other things, any settlement or litigation could involve the payment of substantial sums to settle any alleged violations and may also include the assumption of specific procedural and financial obligations by the Company or its independent subsidiaries under a Corporate Integrity Agreement and/or other such arrangement.
From time to time, various state or Federal agencies may issue requests for information, including but not limited to a subpoena. As an example, California's Office of Health Care Affordability is currently conducting a Cost and Market Impact Review (CMIR) with respect to specific components of a proposed transaction involving several of our California operations. We have been and will continue to communicate with the Office of Health Care Affordability regarding all correspondence and informational requests related to the CMIR.
Other claims and suits, including class actions, continue to be filed against the Company and other companies in its industry. The Company and its independent subsidiaries have been subjected to, and are currently involved in, class action litigation alleging violations (alone or in combination) of state and federal wage and hour laws as related to the alleged failure to pay wages, to timely provide and compensate for meal and rest breaks, and related causes of action. During the three months ended September 30, 2025, the Company agreed to settle substantially all alleged wage, hour or labor code-related violations asserted on a class or representative basis against its independent subsidiaries in California for purported violations occurring during the six year period ending December 2025, for $12,000, pending court approval. The Company does not believe that the ultimate resolution of these actions will have an ongoing material adverse effect on the Company’s business, cash flows, financial condition or results of operations.
In 2024, the Company, on behalf of its independent subsidiaries, received a Civil Investigative Demand (CID) from the U.S. Department of Justice (DOJ) indicating that the DOJ is investigating the Company to determine whether claims have been submitted to Medicare and Texas Medicaid for services which were unnecessary or otherwise not consistent with existing reimbursement requirements. The CID covers the period from January 1, 2016, to the present. As a general matter, the Company's independent subsidiaries maintain policies and procedures to promote compliance with all applicable Medicare and Medicaid requirements, including but not limited to those relating to the presentation of claims for reimbursement for services provided. The Company is fully cooperating with the DOJ in response to the CID. However, the Company cannot predict the outcome of the investigation or its potential impact on the consolidated financial statements.
In 2023, in a four-week medical negligence trial in the State of Arizona, the jury returned a verdict against one of the Company’s independent subsidiaries. The Company is in the process of appealing the jury verdict. The Company has in the past appealed similar decisions and has, in some circumstances, received decisions in its favor. Although the Company intends to vigorously defend against these specific claims and in general these types of claims and cases, there can be no assurance that the outcomes of these matters will not have a material adverse effect on operational results and financial condition. The Company has recorded an estimated liability for this matter.
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Table of Contents | THE ENSIGN GROUP, INC. |
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In 2018, the Company, on behalf of its independent subsidiaries, received a CID from the DOJ stating that it was investigating to determine whether there had been a violation of the False Claims Act (FCA) and/or the Anti-Kickback Statute (AKS) with respect to the relationships between certain of the Company’s independent subsidiaries and persons who serve or have served as medical directors. In 2020, the Company was advised that the DOJ declined to intervene in any subsequent action filed in connection with the subject matter of this investigation. Despite the decision of the DOJ to decline to participate in litigation based on the subject matter of its previously issued CID, the involved qui tam relator moved forward with the complaint in 2020. In 2024, the Company mediated with the involved parties and agreed to settle the civil case for $48,000 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 Contractors (collectively referred to as Reviews). Reviews vary in claim selection size and processes, ranging from a single episode/claim month to larger, multi-claim batches; and from single rounds of review to reviews of multiple rounds with pass/fail criteria. If an operation has a significant error rate or fails a Review and/or subsequent Reviews, the operation could then be subject to extended review or an extrapolation of the identified error rate to billings in the same time period. The Company anticipates that these Reviews could increase in frequency in the future. As of September 30, 2025 and through the filing date of this report, 14 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 58.6% and 52.9% of its total accounts receivable as of September 30, 2025 and December 31, 2024, respectively. Revenue from reimbursement under the Medicare and Medicaid programs accounted for 69.5% and 69.6% of the Company's service revenue for the three and nine months ended September 30, 2025, respectively, and 70.2% and 71.0% for the three and nine months ended September 30, 2024, respectively.
20. COMMON STOCK REPURCHASE PROGRAM
On May 15, 2025, the Board of Directors approved a stock repurchase program pursuant to which the Company is authorized to repurchase up to $20,000 of its common stock under the program for a period of approximately 12 months from June 16, 2025. During the three months ended September 30, 2025, the Company did not repurchase any shares pursuant to this stock repurchase program.
On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which the Company was authorized to repurchase up to $20,000 of its common stock under the program for a period of approximately 12 months from March 26, 2025. During the first and second quarter of 2025, the Company purchased 84 and 73, respectively, of its common stock for $10,775 and $9,225, respectively. 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 approved a stock repurchase program pursuant to which the Company was authorized to repurchase up to $20,000 of its common stock under the program for a period of approximately 12 months from 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.
On August 29, 2023, the Board of Directors approved a stock repurchase program pursuant to which the Company was authorized to repurchase up to $20,000 of its common stock under the program for a period of approximately 12 months from September 1, 2023, which terminated by its terms on August 31, 2024. The Company did not purchase any shares pursuant to this stock repurchase program.
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Table of Contents | THE ENSIGN GROUP, INC. |
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Under the repurchase program, the Company is authorized to repurchase its issued and outstanding common shares from time to time in open-market and privately negotiated transactions, tender offers, pursuant to contractual provisions, and block trades, or otherwise in accordance with federal securities laws. The share repurchase program does not obligate the Company to acquire any specific number of shares. Any such repurchases will depend on the Company's business strategy, prevailing market conditions, the Company's liquidity requirements, contractual restrictions or covenants, compliance with securities laws, and other factors. The amounts involved in any such transaction may be material.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed consolidated financial statements and accompanying notes, which appear elsewhere in this Quarterly Report on Form 10-Q. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 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 17 states. Our independent subsidiaries, each of which strive to be the operation of choice in the communities they serve, provide a broad spectrum of services. As of September 30, 2025, we offered skilled nursing, long term acute care, senior living and rehabilitative care services through 361 skilled nursing and senior living facilities. Our real estate portfolio includes 148 owned real estate properties, which includes 112 facilities operated and managed by us, 36 operations leased to and operated by third-party operators and the Service Center location. Of the 36 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that we own and operate.
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The following table summarizes our independent subsidiaries and operational skilled nursing beds and senior living units by ownership status as of September 30, 2025:

| Owned and Operated |  | Leased (with a Purchase Option) |  | Leased (without a Purchase Option) |  | Total for Facilities Operated
Number of facilities | 112 |  |  | 8 |  |  | 241 |  |  | 361 |
Percentage of total | 31.0 | % |  | 2.2 | % |  | 66.8 | % |  | 100.0 | %
Operational skilled nursing beds | 11,226 |  |  | 687 |  |  | 25,163 |  |  | 37,076 |
Percentage of total | 30.3 | % |  | 1.9 | % |  | 67.8 | % |  | 100.0 | %
Senior living units | 1,938 |  |  | 142 |  |  | 1,321 |  |  | 3,401 |
Percentage of total | 57.0 | % |  | 4.2 | % |  | 38.8 | % |  | 100.0 | %

The Ensign Group, Inc. is a holding company with no direct operating assets, employees or revenues. Our subsidiaries are operated by separate, independent entities, each of which has its own management, employees and assets. In addition, certain of our wholly-owned subsidiaries including Ensign Services, Inc. and Cornet Limited, Inc., referred to collectively as the Service Center, provide centralized accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other independent subsidiaries. We also have a wholly-owned captive insurance subsidiary that provides some claims-made coverage to our independent subsidiaries for general and professional liability, as well as coverage for certain workers’ compensation insurance liabilities 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.
Our acquisition strategy has been focused on identifying both opportunistic and strategic acquisitions within our target markets that offer strong opportunities for return. The operations added by us are frequently underperforming financially and can have regulatory and clinical challenges to overcome. Financial information, especially with underperforming operations, is often inadequate, inaccurate or unavailable. Consequently, we believe that prior operating results are not a meaningful representation of our current operating results or indicative of the integration potential of our newly acquired independent subsidiaries.
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 nine months ended September 30, 2025, we expanded our operations with the addition of 28 stand-alone skilled nursing operations, five stand-alone senior living and one campus operation. These new operations added a total of 3,384 operational skilled nursing beds and 313 operational senior living units operated by our independent subsidiaries.
Subsequent to September 30, 2025, we expanded our operations with the addition of eight stand-alone skilled nursing operations which added 428 operational skilled nursing beds operated by our Company's independent subsidiaries. Seven of the eight expansions are part of a real estate portfolio that allows us to continue growing our footprint in the state of Utah. For further discussion of expansions, see Note 6, 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. 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.
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During the nine months ended September 30, 2025, Standard Bearer added $228.9 million of real estate associated with 15 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 where our independent subsidiaries have been operating and managing these locations. Of these additions, two stand-alone skilled nursing operations are leased to third-party operators and the remaining additions are operated by our independent subsidiaries. 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.
Subsequent to September 30, 2025, Standard Bearer added approximately $65.0 million of real estate associated with seven stand-alone skilled nursing operations, as discussed above, where all of the stand-alone skilled nursing facilities were leased back to our independent subsidiaries.
Common Stock Repurchase Program — On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which we were authorized to repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from March 26, 2025. During the first quarter of 2025, we purchased 84 shares of our common stock for $10.8 million. During the second quarter of 2025, we purchased 73 shares of our common stock for $9.2 million. This repurchase program expired upon the repurchase of the fully authorized amount under the plan and is no longer in effect.
On May 15, 2025, the Board of Directors approved a stock repurchase program pursuant to which we are authorized to repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from June 16, 2025. During the third quarter of 2025, we did not repurchase any shares pursuant to this stock repurchase program.
Litigation — During the three months ended September 30, 2025, we agreed to settle all alleged wage, hour or labor code-related violations asserted on a class or representative basis against our independent subsidiaries in California for purported violations occurring during the six year period ending December 2025, for $12,000, pending court approval.
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 September 30, 2025:

| Facility Counts |  | Bed / Unit Counts
| Skilled Operations | Senior Living Communities | Campus Operations(1) | Total |  | Skilled Operational Beds | Senior Living Units | Total Beds / Units
Texas | 79 | 1 | 5 | 85 |  | 10,242 | 604 | 10,846
California | 78 | 4 | 3 | 85 |  | 8,162 | 378 | 8,540
Arizona | 33 | 1 | 6 | 40 |  | 5,026 | 891 | 5,917
Colorado | 31 | 5 | 1 | 37 |  | 3,369 | 633 | 4,002
Utah | 19 | 2 | 1 | 22 |  | 2,071 | 163 | 2,234
Washington | 17 | 1 | — | 18 |  | 1,608 | 98 | 1,706
Idaho | 14 | — | 1 | 15 |  | 1,301 | 21 | 1,322
Tennessee | 11 | — | — | 11 |  | 1,120 | — | 1,120
Kansas | 3 | — | 8 | 11 |  | 833 | 251 | 1,084
South Carolina | 9 | — | — | 9 |  | 1,126 | — | 1,126
Iowa | 7 | — | 2 | 9 |  | 602 | 31 | 633
Nebraska | 4 | 1 | 3 | 8 |  | 496 | 199 | 695
Wisconsin | 4 | — | — | 4 |  | 302 | — | 302
Nevada | 3 | — | — | 3 |  | 483 | — | 483
Alaska | 1 | 1 | — | 2 |  | 146 | 82 | 228
Alabama | 1 | — | — | 1 |  | 91 | — | 91
Oregon | — | — | 1 | 1 |  | 98 | 50 | 148
| 314 | 16 | 31 | 361 |  | 37,076 | 3,401 | 40,477
(1) Campuses represent facilities that offer both skilled nursing and senior living services.

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The following table provides summary information regarding the location of our owned and operated real estate properties as of September 30, 2025:

| Facility Counts |  | Bed / Unit Counts
| Skilled Operations | Senior Living Communities | Campus Operations(1) | Total |  | Skilled Operational Beds | Senior Living Units | Total Beds / Units
Texas | 22 | 1 | 4 | 27 |  | 3,077 | 574 | 3,651
Arizona | 12 | — | 5 | 17 |  | 2,052 | 494 | 2,546
California | 11 | — | 1 | 12 |  | 1,290 | 42 | 1,332
Colorado | 6 | 3 | — | 9 |  | 592 | 369 | 961
Utah | 8 | — | — | 8 |  | 764 | — | 764
Washington | 6 | — | — | 6 |  | 621 | — | 621
Kansas | 1 | — | 5 | 6 |  | 445 | 167 | 612
Idaho | 6 | — | — | 6 |  | 590 | — | 590
South Carolina | 5 | — | — | 5 |  | 544 | — | 544
Wisconsin | 4 | — | — | 4 |  | 302 | — | 302
Nebraska | 1 | 1 | 1 | 3 |  | 171 | 160 | 331
Tennessee | 3 | — | — | 3 |  | 300 | — | 300
Alaska | 1 | 1 | — | 2 |  | 146 | 82 | 228
Iowa | 3 | — | — | 3 |  | 234 | — | 234
Oregon | — | — | 1 | 1 |  | 98 | 50 | 148
| 89 | 6 | 17 | 112 |  | 11,226 | 1,938 | 13,164
(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 September 30, 2025:

| Owned and Operated by Ensign(1) |  | Owned and Leased to Third-Party Operators(1) |  | Service Center |  | Total Properties(1)
Texas(1) | 27 |  | 7 |  | — |  | 33
Wisconsin | 4 |  | 22 |  | — |  | 26
Arizona | 17 |  | 1 |  | — |  | 18
California | 12 |  | 2 |  | 1 |  | 15
Colorado | 9 |  | — |  | — |  | 9
Washington | 6 |  | 3 |  | — |  | 9
Utah | 8 |  | — |  | — |  | 8
Idaho | 6 |  | — |  | — |  | 6
Kansas | 6 |  | — |  | — |  | 6
South Carolina | 5 |  | — |  | — |  | 5
Iowa | 3 |  | — |  | — |  | 3
Nebraska | 3 |  | — |  | — |  | 3
Tennessee | 3 |  | — |  | — |  | 3
Alaska | 2 |  | — |  | — |  | 2
Oregon | 1 |  | — |  | — |  | 1
Nevada | — |  | 1 |  | — |  | 1
| 112 |  | 36 |  | 1 |  | 148

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

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
Skilled Mix: | 2025 |  | 2024 |  | 2025 |  | 2024 |  |
Days | 30.3 | % |  | 29.7 | % |  | 30.8 | % |  | 30.2 | % |  |
Revenue | 48.9 | % |  | 48.5 | % |  | 49.4 | % |  | 48.8 | % |  |

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 September 30, |  | Nine Months Ended September 30, |  |
Occupancy for skilled services: | 2025 |  | 2024 |  | 2025 |  | 2024 |  |
Operational beds at end of period | 37,076 |  |  | 33,039 |  |  | 37,076 |  |  | 33,039 |  |  |
Available patient days | 3,367,685 |  |  | 2,974,651 |  |  | 9,683,807 |  |  | 8,658,993 |  |  |
Actual patient days | 2,772,062 |  |  | 2,407,709 |  |  | 7,925,688 |  |  | 6,962,308 |  |  |
Occupancy percentage (based on operational beds) | 82.3 | % |  | 80.9 | % |  | 81.8 | % |  | 80.4 | % |  |

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 and Chairman of the Board, 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 September 30,
|  | Skilled Services |  | All Other (3) |  | Total Service Revenue
|  | 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024
Medicaid(1) |  | $ | 501,722 |  |  | $ | 416,190 |  |  | $ | 13,435 |  |  | $ | 9,452 |  |  | $ | 515,157 |  |  | $ | 425,642 |
Medicare |  | 303,281 |  |  | 263,594 |  |  | — |  |  | — |  |  | 303,281 |  |  | 263,594 |
Medicaid-skilled |  | 78,450 |  |  | 65,907 |  |  | — |  |  | — |  |  | 78,450 |  |  | 65,907 |
Subtotal |  | $ | 883,453 |  |  | $ | 745,691 |  |  | $ | 13,435 |  |  | $ | 9,452 |  |  | $ | 896,888 |  |  | $ | 755,143 |
Managed care |  | 237,978 |  |  | 202,528 |  |  | — |  |  | — |  |  | 237,978 |  |  | 202,528 |
Private and other(2) |  | 117,665 |  |  | 84,894 |  |  | 37,248 |  |  | 33,527 |  |  | 154,913 |  |  | 118,421 |
TOTAL SERVICE REVENUE |  | $ | 1,239,096 |  |  | $ | 1,033,113 |  |  | $ | 50,683 |  |  | $ | 42,979 |  |  | $ | 1,289,779 |  |  | $ | 1,076,092 |

|  | Three Months Ended September 30,
|  | Skilled Services |  | All Other (3) |  | Total Service Revenue
|  | 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024
Medicaid(1) |  | 40.5 | % |  | 40.3 | % |  | 26.5 | % |  | 22.0 | % |  | 39.9 | % |  | 39.6 | %
Medicare |  | 24.5 |  |  | 25.5 |  |  | — |  |  | — |  |  | 23.5 |  |  | 24.5 |
Medicaid-skilled |  | 6.3 |  |  | 6.4 |  |  | — |  |  | — |  |  | 6.1 |  |  | 6.1 |
Subtotal |  | 71.3 | % |  | 72.2 | % |  | 26.5 | % |  | 22.0 | % |  | 69.5 | % |  | 70.2 | %
Managed care |  | 19.2 |  |  | 19.6 |  |  | — |  |  | — |  |  | 18.5 |  |  | 18.8 |
Private and other(2) |  | 9.5 |  |  | 8.2 |  |  | 73.5 |  |  | 78.0 |  |  | 12.0 |  |  | 11.0 |
TOTAL SERVICE REVENUE |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %
(1) Medicaid payor includes revenue for senior living operations.
(2) Private and other in skilled services includes private, Veteran Affairs and hospice payors. In addition, private and other in the "all other" category includes revenue from senior living and ancillary operations.
(3) All Other incorporates intercompany eliminations.

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|  | Nine Months Ended September 30,
|  | Skilled Services |  |  |  |  |  | All Other (3) |  | Total Service Revenue
|  | 2025 |  | 2024 |  |  |  |  |  |  |  |  |  | 2025 |  | 2024 |  |  | 2025 |  | 2024 |
Medicaid(1) |  | $ | 1,419,037 |  |  | $ | 1,201,435 |  |  |  |  |  |  |  |  |  |  | $ | 35,808 |  |  | $ | 26,130 |  |  |  | $ | 1,454,845 |  |  | $ | 1,227,565 |  |
Medicare |  | 882,149 |  |  | 788,046 |  |  |  |  |  |  |  |  |  |  | — |  |  | — |  |  |  | 882,149 |  |  | 788,046 |  |
Medicaid-skilled |  | 223,208 |  |  | 192,185 |  |  |  |  |  |  |  |  |  |  | — |  |  | — |  |  |  | 223,208 |  |  | 192,185 |  |
Subtotal |  | $ | 2,524,394 |  |  | $ | 2,181,666 |  |  |  |  |  |  |  |  |  |  | $ | 35,808 |  |  | $ | 26,130 |  |  |  | $ | 2,560,202 |  |  | $ | 2,207,796 |  |
Managed care |  | 694,690 |  |  | 581,654 |  |  |  |  |  |  |  |  |  |  | — |  |  | — |  |  |  | 694,690 |  |  | 581,654 |  |
Private and other(2) |  | 317,142 |  |  | 230,680 |  |  |  |  |  |  |  |  |  |  | 106,199 |  |  | 91,021 |  |  |  | 423,341 |  |  | 321,701 |  |
TOTAL SERVICE REVENUE |  | $ | 3,536,226 |  |  | $ | 2,994,000 |  |  |  |  |  |  |  |  |  |  | $ | 142,007 |  |  | $ | 117,151 |  |  |  | $ | 3,678,233 |  |  | $ | 3,111,151 |  |

|  | Nine Months Ended September 30, |
|  | Skilled Services |  | All Other (3) |  |  | Total Service Revenue |
|  | 2025 |  | 2024 |  |  | 2025 |  | 2024 |  |  | 2025 |  | 2024 |
Medicaid(1) |  | 40.1 | % |  | 40.1 | % |  |  | 25.2 | % |  | 22.3 | % |  |  | 39.6 | % |  | 39.5 | % |
Medicare |  | 24.9 |  |  | 26.3 |  |  |  | — |  |  | — |  |  |  | 24.0 |  |  | 25.3 |  |
Medicaid-skilled |  | 6.4 |  |  | 6.5 |  |  |  | — |  |  | — |  |  |  | 6.0 |  |  | 6.2 |  |
Subtotal |  | 71.4 | % |  | 72.9 | % |  |  | 25.2 | % |  | 22.3 | % |  |  | 69.6 | % |  | 71.0 | % |
Managed care |  | 19.6 |  |  | 19.4 |  |  |  | — |  |  | — |  |  |  | 18.9 |  |  | 18.7 |  |
Private and other(2) |  | 9.0 |  |  | 7.7 |  |  |  | 74.8 |  |  | 77.7 |  |  |  | 11.5 |  |  | 10.3 |  |
TOTAL SERVICE REVENUE |  | 100.0 | % |  | 100.0 | % |  |  | 100.0 | % |  | 100.0 | % |  |  | 100.0 | % |  | 100.0 | % |
(1) Medicaid payor includes revenue for senior living operations. |
(2) Private and other in skilled services includes private, Veteran Affairs and hospice payors. In addition, private and other in our "all other" category includes revenue from senior living and ancillary operations. |
(3) All Other incorporates intercompany eliminations. |

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.
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We believe that the regulatory environment surrounding the healthcare industry subjects providers to intense scrutiny. In the ordinary course of business, providers are subject to inquiries, investigations and audits by federal and state agencies related to compliance with participation and payment rules under government payment programs. These inquiries may originate from the Department of Health and Human Services (HHS), Office of the Inspector General (OIG), state Medicaid agencies, state Attorney Generals, local and state ombudsman offices and the Centers for Medicare and Medicaid Services (CMS) Recovery Audit Contractors, among other agencies. In response to the inquiries, investigations and audits, federal and state agencies may impose citations for regulatory deficiencies and other regulatory penalties, including demands for refund of overpayments, expanded civil monetary penalties that extend over long periods of time and date back to incidents prior to surveyor visits, Medicare and Medicaid payment bans and terminations from those programs, which may be temporary or permanent in nature. We vigorously contest each such regulatory outcome when appropriate; however, there are significant legal and other expenses involved that consume our financial and personnel resources. Expansion of enforcement activity could adversely affect our business, financial condition or the results of operations.
Proposed, Anticipated and Recently Issued Rulemaking and Administrative Actions
The federal government, through CMS rulemaking, Presidential executive actions or Congressional legislation, and state and local governments have recently released the following proposed or final rulemaking, or administrative actions that may have an impact on our independent Skilled Nursing Facilities (SNFs) or Assisted Living Facilities (ALFs):
Federal Government Shutdow n — Congress was unable to pass a new spending package before October 1, 2025, and as a result, the federal government shut down. At this time, we anticipate minimal impact on our businesses as both Medicare and Medicaid are mandatory health program payments that continue even during a lapse of appropriations.
HHS has a contingency plan to maintain necessary staffing and funding for certain programs during this time. This includes continuing Medicare and Medicaid payments to providers and states. There may be slight delays in payments, waiver approvals, changes of ownership approvals, and technical assistance due to fewer federal staff available to do this work, but we do not anticipate serious disruptions.
Given the reduction in federal staff, rule-making and other policy developments may be delayed. CMS survey and certification surveys will focus on serious, complaint investigations and other survey activities (e.g., recertification, initial and less serious complaint investigations) by federal staff will be suspended.
One Big Beautiful Bill (OBBB) — The OBBB was signed into law on July 4, 2025, implementing a range of federal reforms targeting Medicaid financing, eligibility, and payment structures. The following provisions of the OBBB are expected to impact Medicaid reimbursement mechanisms and enrollment dynamics relevant to our business.
Moratorium on New or Increased Provider Taxes — Provider taxes, which are state taxes assessed on healthcare providers or facilities, are a commonly used by states to generate non-federal share of Medicaid payments, including payments to SNFs. Under the Patient Protection and Affordable Care Act (ACA), provider taxes were capped at 6% of a provider's net patient revenue. Existing federal law prohibits states Medicaid programs from guaranteeing providers that they will receive their provider taxes paid back - this is known as the hold harmless provision. The OBBB prohibits states from imposing new provider taxes or increasing existing provider tax rates or tax bases, with specific carve outs for nursing facilities and intermediate care facilities to remain at status quo. The OBBB reduces the hold harmless threshold in expansion states beginning in fiscal year 2028. This threshold will decrease by 0.5% per year in ACA expansion states until the safe harbor limit is 3.5% in fiscal year 2032. While SNFs are exempt from the moratorium, broader limitations on provider taxes could reduce overall state Medicaid financing flexibility, increasing the risk of lower SNF reimbursement rates.
Medicaid Recertification Changes and Retroactive Eligibility Cut — Beginning in the first quarter of 2027, states must conduct Medicaid eligibility redeterminations every six months, rather than annually, for individuals enrolled under Medicaid. Additionally, the OBBB includes a provision to reduce Medicaid retroactive eligibility from 90 days to 30 days for most enrollees but is 60 days for long-term care residents and traditional Medicaid enrollees. We believe that these provisions could create the conditions for coverage interruptions, potential delays or denied payments.
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Revisions to State-Directed Payments (SDPs) — Prior to the OBBB’s passage, state Medicaid programs could require Medicaid managed care organizations (MCOs) to pay providers certain rates, make uniform rate increases, or to use certain payment methods. These state-mandated payments by MCOs were known as SDPs, the upper limits for which generally were higher than the highest Medicare payment rate for those services, which is used in calculating Medicaid fee-for-service supplemental payments. The OBBB limits total payments under existing CMS-approved SDPs to current levels and caps future SDPs based on whether the state has expanded its Medicaid program under the ACA. SDPs approved prior to the OBBB’s implementation are grandfathered by the OBBB, although those grandfathered payments are reduced by 10% per year starting on January 1, 2028, until those SDPs reach the allowable Medicare-related payment limit. For Medicaid expansion states, new SDPs may not exceed 100% of the Medicare equivalent payment rate; for non-expansion states, the cap is 110%. In the absence of published Medicare payment rates, the OBBB limits SDPs to the Medicaid fee-for-service payment rate. This provision could reduce overall state Medicaid financing flexibility, increasing the risk of lower SNF reimbursement rates.
Cap on Home Equity Excluded for Long-Term Care Eligibility Determination — The OBBB establishes a limit of $1.0 million for home equity that can be exempted from calculating an individual’s eligibility for Medicaid in seeking long-term care beginning January 1, 2028. This threshold is not indexed to inflation. States may, however, apply different home equity limits for primary residences that are located on farms.
Reduced Federal Contributions to State Medicaid Programs – Beginning in fiscal year 2030, the OBBB requires HHS to reduce federal financial contributions to Medicaid programs in states that identified improper payments to ineligible individuals or overpayments to eligible individuals. The OBBB expanded the scope of these improper payments to include payments where insufficient information is available to confirm the recipient’s eligibility for payment.
Home and Community Based Services (HCBS) – The OBBB allows states to obtain waivers from CMS so that Medicaid can be used to pay for HCBS rendered to beneficiaries who do not require an institutional level of care found in a SNF. The OBBB requires these waiver applications to include a demonstration that the state’s waiver will not increase the average amount of time that beneficiaries who need institutional levels of care will have to wait for services, intending to avoid HCBS being used in lieu of adequate SNF access for Medicaid beneficiaries requiring institutional care.
Overall Impact on State Budgets – The full effect of the OBBB on state budgets remains uncertain, particularly given the anticipated reduction in federal Medicaid contributions. A key risk to our revenue is that states may generally have fewer financial resources available. In response to how the overall budgets of states will be impacted by the OBBB due to reduced federal Medicaid contributions, some states have already taken legislative and regulatory actions to address the provisions of the OBBB and its potential impact. For instance, on September 17, 2025, California enacted Senate Bill 105, a comprehensive budget bill for the 2025-2026 fiscal year. This legislation allocates funding and makes budgetary adjustments across various state agencies, with notable emphasis on specific areas. Among its provisions, Senate Bill 105 designates targeted funding for the state’s Medicaid program, Medi-Cal, to ensure alignment with the OBBB.
Similarly, Colorado enacted Senate Bill 0001 on August 28, 2025. This law establishes a process for the governor to implement spending reductions if the state is unable to meet its fiscal obligations. It also requires the governor to submit proposed spending reduction plans to a legislative budget committee, which is responsible for advising the governor on these matters.
Overall, we anticipate more states may face challenging choices regarding their state budgets, which will increase the risk of lower SNF reimbursement rates. We will continue to monitor any such developments and advocate accordingly at the federal, state and local levels.
Medicare Annual Payment Rule — On July 31, 2025, CMS released the final rule for the SNF Prospective Payment System (PPS) Fiscal Year (FY) 2026 Final Rule outlining the following key changes:
FY 2026 Final Updates to the SNF Payment Rates — For fiscal year 2026, which begins on October 1, 2025 and ends on September 30, 2026, CMS has finalized a 3.2% increase to SNF PPS payment rates. This increase is based on the final SNF market basket of 3.3%, plus a 0.6% market basket forecast error adjustment, and a negative 0.7% productivity adjustment. This increase does not incorporate the SNF Value-Based Purchasing (VBP) Program reductions for certain SNFs subject to the net reduction in payments under the SNF VBP.
Patient-Driven Payment Model (PDPM) ICD-10 code mappings – CMS finalized several technical revisions to the code mappings used to classify patients under the PDPM. These revisions are intended to enhance the accuracy of patient classification, payment calculations and coding practices under the PDPM.
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SNF Quality Reporting Program (QRP) — CMS has announced changes to the QRP that will take effect for residents admitted on or after October 1, 2025, impacting the FY 2027 SNF QRP. Specifically, four standardized patient assessment data elements within the Social Determinants of Health (SDOH) category will be removed. Additionally, CMS has updated the policy and process for submitting reconsideration requests, including amendments and codification of these procedures.
SNF Value-Based Purchase (VBP) Program — For the FY 2028 and FY 2029 program years, CMS has established performance standards to meet the statutory notice requirements. Additionally, starting with the FY 2028 program year, CMS will implement the previously established scoring methodology for the SNF Within-Stay Potentially Preventable Readmission (SNF WS PPR) measure, which will be included in the program’s measure set for the first time. To simplify the scoring process and provide clearer incentives for skilled nursing facilities (SNFs) to enhance the quality of care for all residents, CMS has decided to remove the Health Equity Adjustment. Furthermore, beginning with the FY 2027 program year, CMS will introduce a reconsideration process. This process will allow SNFs to request reconsideration if they are dissatisfied with CMS’s decision regarding a review and correction request.
Medicare Part B Fee Schedule — On July 14, 2025, CMS issued the 2026 Medicare Physician Fee Schedule (PFS) Proposed Rule, which outlines significant changes aimed at modernizing Medicare, improving care quality, and reducing unnecessary spending.
Two Payment Rates Based on Advanced Alternative Payment Model (AAPM) Participation — For the first time, there are two separate conversion factors for all Medicare-participating providers which impacts reimbursement for therapeutic services (including occupational therapy, speech language therapy, and physical therapy), evaluation and management services, and other services furnished in SNFs covered by Medicare Part B. This is required under the Medicare Access and CHIP Reauthorization Act (MACRA) depending on whether a provider qualifies as a participant in an AAPM. CMS proposes a qualifying AAPM participant conversion factor of $33.59, representing a 3.83% increase over the 2025 conversion factor of $32.35. The non-AAPM participant conversion factor is $33.42, a 3.31% increase over such 2025 conversion factor.
Payment Adjustments — CMS intends to decrease payments by 2.5% for certain services that are not time-based, such as certain therapy services. The rationale is that providers are expected to deliver these services more efficiently as they performed them repeatedly over time. This reduction is designed to balance out other areas of Medicare spending increases.
Telehealth — CMS has proposed significant changes to the Medicare Telehealth List (MTSL), including expanding permanent flexibilities for virtual direct supervision. One key change is the permanent lifting of frequency limits on providing subsequent nursing facility visits furnished via telehealth. Previously, when adding some services to the MTSL, CMS has included certain frequency restrictions on how often physicians and other practitioners can furnish the service via telehealth (e.g., one subsequent nursing facility visit furnished through telehealth every 14 days). Removing these restrictions will likely result in increased access to care and allow for additional services to be provided via telehealth.
CMS’s proposed changes could impact how SNFs deliver and bill for physician and ancillary services. The scope of reimbursable therapy and remote care services may expand, but future payment levels could fluctuate, positively or negatively, based on broader assumptions about efficiency and practice cost. SNFs that deliver telehealth-based care or participate in care coordination models may benefit from expanded flexibility and new billing pathways. However, these changes may also introduce added operational complexity and new compliance requirements. We are actively evaluating the proposal to understand its potential effects on our operations and financial outcomes.
Improving Care and Access to Nurses Act (I CAN Act) – I CAN Act was introduced in the Senate on February 13, 2025 and seek to expand the role of nurse practitioners (NPs) in SNFs and nursing homes. Under this legislation, NPs would be permitted to certify, oversee, and supervise care under Medicare and Medicaid without requiring physician oversight, subject to state law. If enacted, the Act would grant NPs the authority to certify patient admissions, manage care plans, and provide supervision in SNFs and intermediate care facilities. These proposed changes could potentially reduce reliance on physicians, streamline patient transitions from hospitals to long-term care, and increase access to care particularly in rural and underserved areas. The bill was referred to the Senate Committee on Finance on February 13, 2025, and has not advanced further since then.
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Biden-Harris Administration's Nursing Home Care Priorities — Prior to the change in Presidential Administration in 2025, the Biden-Harris Administration pursued reforms related to reimbursement, staffing levels, standards of care, increased transparency and public disclosure of ownership, and enhanced civil remedies as a means of enforcement against those facilities that do not satisfy CMS’s standards. These regulations remain active and enforceable. For instance, the SNF PPS FY 2025 Final Rule expanded CMS's authority to impose sanctions on Medicare-participating SNFs with ongoing or repeated deficiencies, with these enhanced enforcements taking effect at the start of the 2025. These increased sanctioning authorities took effect in the 2025 federal fiscal year, which began on October 1, 2024. With the publication of the SNF PPS FY2026 Final Rule, it appears the new administration does not intend to make significant changes to the scope, impact, or enforcement of these existing rules.
CMS Minimum Staffing Standards Final Rule — In April 2024, CMS issued its final rule establishing minimum staffing standards for skilled nursing facilities (Staffing Rule). The Staffing Rule has been met with opposition and legislation to halt its implementation. Litigation followed in federal courts located in Texas and Iowa, followed by appeals to the United States Courts of Appeals for the Fifth and Eight Circuits, respectively, in which CMS appealed court rulings holding that the Staffing Rule's staffing requirements were unenforceable. CMS has moved to dismiss both of these appeals, which request the Fifth Circuit granted on September 19, 2025. Notwithstanding CMS's reversal of its defense of the Staffing Rule, on September 2, 2025, CMS announced that it had drafted an interim final rule to repeal the Staffing Rule's minimum staffing standards. Implementation of the Staffing Rule was further impaired by the passage of the OBBB on July 4, 2025, which prohibited HHS from implementing, administering, or enforcing the Staffing Rule until October 1, 2034.
Medicare
Medicare presently accounts for approximately 24.9% of our skilled nursing services revenue year-to-date, being our second-largest revenue payor. The Medicare program and its reimbursement rates and rules are subject to frequent change. These include statutory and regulatory changes, rate adjustments, administrative or executive orders and government funding restrictions, all of which may materially adversely affect the rates at which Medicare reimburses us for our services. Budget pressures often lead the federal government to reduce or place limits on reimbursement rates under Medicare. Implementation of these and other types of measures has in the past, and could in the future, result in substantial reductions in our revenue and operating margins.
Patient-Driven Payment Model (PDPM) — The FY 2020 SNF PPS Rule implemented the Patient-Driven Payment Model (PDPM), a case mix methodology that bases Medicare reimbursement on the clinical condition and care needs of each patient. Under PDPM, diagnosis codes and various patient characteristics are used to classify residents and determine payment levels. The model incorporates five case-mix adjusted payment components - physician therapy, occupational therapy, speech language pathology, nursing and social services and non-therapy ancillary services - to reflect the complexity of care provided. Additionally, PDPM includes a sixth non-case mix component to account for utilization of SNFs' resources that are unrelated to individual resident characteristics.
PDPM is intended to achieve a more value-based, unified approach to post-acute care payments system. For example, it adjusts Medicare reimbursements to reflect the specific care requirements of each resident, rather than simply the volume or type of services delivered by the facility. As a result, payments to SNFs and nursing homes are primarily determined by the patient’s clinical profile, promoting a system that better aligns payment with patient needs.
Skilled Nursing Facility - Quality Reporting Program (SNF QRP) — The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) provided data reporting requirements for certain Post-Acute-Care (PAC) providers. If a SNF does not submit required quality data as required by the IMPACT Act, its payment rates are reduced by 2.0% for each such fiscal year, which may result in payment rates for a fiscal year being less than the preceding fiscal year.
The SNF QRP standardized patient assessment data elements. The SNF QRP applies to freestanding SNFs, SNFs affiliated with acute care facilities and all non-critical access hospital swing-bed rural hospitals. These data elements are the subject of frequent change and adjustment. CMS's rulemaking often identifies new data elements to be reported.
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CMS revised the calculation of its five-star ratings for the Nursing Home Compare website. Under this methodology, points are assigned to a SNF based on its performance across six measures: (1) case-mix adjusted total nurse staffing levels (including registered nurses, licensed practical nurses, and nursing aides), measured by hours per resident per day; (2) case-mix adjusted registered nurse staffing levels, measured by hours per resident per day; (3) case-mix adjusted total nurse staffing levels (including registered nurses, licensed practical nurses, and nursing aides), measured by hours per resident day on the weekend; (4) total nurse turnover, defined as the percentage of nursing staff that left the nursing home over a 12-month period; (5) registered nurse turnover, defined as the percentage of registered nursing staff that left the nursing home over a 12-month period; and (6) administrator turnover, defined as the percentage of administrators that left the nursing home over a 12-month period. These six measures will be measured on a quarterly basis.
These six measures were included in the five-star rating starting in October 2022. In addition, CMS also implemented a planned increase to the quality measure reporting thresholds, increasing each threshold by one-half of the average improvement of quality measure scores since CMS last set quality measure thresholds. Going forward, CMS plans to implement similar rating threshold increases every six months.
CMS has continued to refine the QRP including various measurements such as the adoption of a process measure for influenza vaccination coverage among healthcare personnel within SNFs and a Discharge Function Score (DC Function) measure, which determines the functional condition of residents by examining the proportion of SNF residents who achieve or surpass a projected discharge functionality score. The assessment includes consideration of mobility and self-care, utilizing data from the Minimum Data Set (MDS). The DC Function replaces the current process and is in effect for the FY 2025 SNF QRP. The SNF PPS FY 2024 Final Rule also modified the SNF QRP’s Healthcare Professional (HCP) Covid Vaccine Measure. The measure will track the proportion of healthcare staff vaccinated for COVID-19 and have kept their vaccination status current per the CDC recommendations. The SNF PPS FY 2024 Final Rule also removed the Application of Functional Assessment/Care Plan measures from the SNF QRP.
Under the SNF PPS FY 2024 Final Rule, CMS adopted two measures for the SNF QRP starting in FY 2026. First, CMS raised the Data Completion Thresholds for the MDS. SNFs must report required quality measure data and standardized resident assessment data gathered using the MDS for at least 90% of the assessments they submit to CMS. SNFs who fail to meet this requirement will be subject to a 2.0% reduction on their applicable fiscal year payment starting in FY 2026. Second, CMS adopted the Patient/Resident COVID-19 Vaccine metric. This metric highlights the number of patient stays in which SNF patients received the COVID-19 vaccine.
CMS’s SNF PPS FY 2025 Final Rule adopted several updates to the SNF QRP aimed at enhancing the integration of social determinants of health (SDOH) into patient assessments and ensuring the accuracy of reported data. Starting in fiscal year 2027, CMS will introduce four new SDOH items related to living situation, food security, and utility access, and modify an existing item on transportation availability in the MDS. Additionally, CMS requires that SNFs participating in the SNF QRP undergo a data validation process similar to that already implemented in the SNF Value-Based Purchasing (VBP) Program.
Starting in 2026, SNFs participating in the SNF QRP program will be required to take part in a validation program similar to that used for SNFs participating in the SNF VBP Program. Each year, 1,500 SNFs will be randomly chosen to submit MDS records for review. Facilities selected for this audit must provide the requested medical chart documentation within 45 calendar days of notification; failure to do so will result in noncompliance and a 2% reduction in Medicare reimbursement for that fiscal year.
Additionally, as outlined in the SNF PPS FY 2026 Final Rule, four standardized patient assessment data elements within the Social Determinants of Health (SDOH) category will be modified for residents admitted on or after October 1, 2025, impacting the FY 2027 SNF QRP. CMS has also finalized changes to the reconsideration request policy and process, formally amending and codifying procedures related to QRP data and evaluations.
Medicare Annual Payment Rule — Refer to Proposed, Anticipated and Recently Issued Rulemaking and Administrative Actions above for additional information on the SNF PPS FY 2026 Final Rule.
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Final Rule Fiscal Year 2025 SNF PPS — Starting on October 1, 2024 through September 30, 2025, CMS' final rule for the SNF PPS for FY 2025 (SNF PPS FY 2025 Final Rule) results in a net 4.2% increase in SNF payments under Medicare Part A in fiscal year 2025. The net increase was based on the SNF market basket of 3.0%, plus a 1.7% market basket forecast error adjustment, and a negative 0.5% productivity adjustment. This increase does not include the SNF VBP reductions for certain SNFs subject to the net reduction in payments under the SNF VBP. CMS also revised the SNF market basket base year from the 2018 base year to the current 2022 base year and updated the payment rates used under the SNF PPS based on the FY 2025 market basket increase factor, which is adjusted by both the productivity adjustment and forecast error correction. Within this rule, CMS also updated the SNF PPS wage index using core-based statistical areas (CBSAs) to reflect regional wage costs.
Home Health and Hospice Payment Rules Affecting SNFs — CMS’s final payment rules for other modalities of care delivery also affect the operations of SNFs. Under the 2025 Home Health PPS Final Rule, long-term care facilities, including SNFs, are required to submit at least weekly reports to CMS on respiratory illnesses. These reports must include information such as facility census, resident vaccination status for specified respiratory illnesses, confirmed resident cases and residents hospitalized from such illnesses.
Sequestration of Medicare Rates — The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called sequestration. Medicare FFS claims with dates of service or dates of discharge on or after April 1, 2013, incur a 2.0% reduction in Medicare payments through at least 2023, unless Congress takes further action. Under the Consolidated Appropriations Act of 2023 (CAA 2023), a further 4.0% cut to Medicare spending that would have been required under the Statutory Pay-As-You-Go Act of 2010 (PAYGO) was waived for fiscal years 2023 and 2024. Instead, the CAA 2023 deferred any further Medicare sequestration under PAYGO until fiscal year 2025. The CAA 2023 also offset planned Medicare sequestrations that would have been as high as 4.0% and instead maintained fee schedule cuts of approximately 2.0%. Absent a further act by Congress, such as a consolidated appropriations act for 2025 or other bill addressing spending in fiscal year 2025 (including retroactively), the sequestration of Medicare FFS claims is expected to take effect in fiscal year 2025. On October 29, 2024, the Medicare Patient Access and Stabilization Act of 2024 (MPASA) was introduced in the House of Representatives, seeking to increase the amount paid to physicians under Medicare by 4.73%. MPASA was referred to the House Ways and Means Committee and House Committee on Energy and Commerce on October 29, 2024, and referred to the Subcommittee on Health on December 17, 2024, with no further action taken on the bill, which did not pass into law before the end of the 118th Congress in December of 2024. Except for the increase in Medicare reimbursement made available under the OBBB discussed above, as of September 30, 2025, there has not been any further legislation proposed to combat this sequestration of Medicare rates.
Skilled Nursing Facility Value-Based Purchasing (SNF-VBP) Program — The SNF-VBP Program incentivizes SNFs by awarding payments based on the quality of care provided to Medicare beneficiaries, primarily measured through hospital readmission rates. Each year, CMS adjusts its payment rules for SNFs using this program, which now includes additional quality measures such as sharing of health information and standardized patient assessment data elements that evaluate cognitive function and mental status, special services and social determinants of health. CMS regulations outline both the performance metrics and the required data reporting for SNFs. Reporting deadlines for baseline period and performance periods began with the 2023 program year. The FY 2023 SNF PPS Final Rule expanded the SNF-VBP program beyond the single hospital readmission measure, adding new metrics for fiscal year 2026, such as healthcare associated infections requiring hospitalization (SNF HAI) and total nursing hours per resident day, and in fiscal year 2027, the discharge to community post-acute care measure for SNFs, which tracks of successful transitions from SNFs to community settings.
In the FY 2024 SNF PPS Final Rule, CMS elected to replace the SNFRM measure with the SNF within-stay (WS) potentially preventable readmission (PPR) measure starting in FY 2028. The PPR measure assesses the risk-standardized rate of unplanned, avoidable readmissions during SNF stays for Medicare fee-for-service beneficiaries. This new measure refines the previous 30-Day readmission metric by extending the observation period to the entire SNF stay and increasing the allowable gap between hospital discharge and the SNF admission to 30 days. These changes better align with the IMPACT Act and enhance the reliability of preventable readmissions tracking. The measure uses two years of Medicare claims data to calculate provider-specific risk-standardized readmission rate.
The FY 2025 SNF PPS Final Rule adopted several operational and administrative updates to the SNF VBP Program, including policies for selecting, updating and removing measurements to ensure ongoing relevance and effectiveness for assessing care quality. CMS also updated technical measures and procedures for reviewing and correcting data used to calculate its measures. SNFs can now review and correct PBJ data from fiscal year 2026 and MDS data from fiscal year 2027, allowing for more precise measurement based on updated data.
The FY 2026 SNF PPS Final Rule finalized several updates, including setting performance standards for the FY 2028 and FY 2029 program years to meet statutory notice requirements. CMS will apply the previously established scoring methodology
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to the SNF Within-Stay Potentially Preventable Readmission (WS PPR) measure starting in FY 2028. Additionally, CMS removed the Health Equity Adjustment to simplify scoring and clarify incentives for quality improvement. A new reconsideration process was also adopted, enabling SNFs to request a review if they are dissatisfied with CMS’s decision on a correction request, beginning with the FY 2027 program year.
Part B Rehabilitation Requirements — A portion of our revenue is paid by the Medicare Part B program under a fee schedule. Part B services are limited with a payment cap by combined speech-language pathology services (SLP), physical therapy (PT) services and a separate annual cap for occupational therapy (OT) services. Part B services are limited by a payment cap as there is one amount for physical therapy (PT) services and speech-language pathology (SLP) services combined and a separate amount for occupational therapy (OT) services.
The Bipartisan Budget Act of 2018 (BBA) establishes coding modifier requirements to obtain payments beyond certain payment thresholds, discussed below and reaffirms the specific $3,000 claim audit threshold requirements for Medicare Administrative Contractors. For PT and SLP combined the threshold for coding modifier requirements was $2,410 for CY 2025 with the same threshold for OT services. The KX modifier is added to medical claims to indicate the providing clinician attests that the services corresponding to that claim were medically necessary and that the justification for those services is contained within the patient’s medical records. This modifier is intended for use where the services will exceed the threshold for those services set by the BBA and updated by annual fee schedule rules, yet are still appropriate and medically necessary, and thus should be compensated by Medicare.
Consistent with CMS’s “Patients over Paperwork” initiative, the agency has also been moving toward eliminating burdensome claims-based functional reporting requirements. Beginning in 2021, CMS rescinded 21 problematic National Correct Coding Initiative edits impacting outpatient therapy services, including services furnished under Medicare Part B primarily related to PT and OT services, removing a coding burden caused by requirements for additional documentation and claim modifier coding.
Additionally, the Multiple Procedure Payment Reduction (MPPR) continues at a 50.0% reduction, which is applied to therapy procedures by reducing payments for practice expense of the second and subsequent procedures when services provided beyond one unit of one procedure are provided on the same day. The implementation of MPPR includes (1) facilities that provide Medicare Part B speech-language pathology, occupational therapy and physical therapy services and bill under the same provider number; and (2) providers in private practice, including speech-language pathologists, who perform and bill for multiple services in a single day.
On March 9, 2024, President Biden signed the Consolidated Appropriations Act of 2024, which included a 2.93% update to the 2024 Physician Fee Schedule (PFS) Conversion Factor (CF) for dates of service March 9, 2024 through December 31, 2024. This replaced the 1.25% update provided by the Consolidated Appropriations Act of 2023.
Through the end of 2024, certain of our Part B services provided through telehealth would qualify for Medicare reimbursement based on flexibility first provided under the Emergency Waivers, which added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF. During the Public Health Emergency (PHE), CMS added certain PT and OT services to the list of Medicare-covered telehealth services on a temporary basis, some of which were made permanent for use and new codes were added for PT, OT, or SLP telehealth services—including some “sometimes therapy” codes that were not subject to MPPR. The CAA 2023 extended certain, but not all, telehealth flexibilities until December 31, 2024, allowing certain telehealth flexibilities to continue after the PHE's expiration. The American Relief Act, 2025 extended some but not all telehealth flexibilities for an additional 3 months through March 31, 2025. On March 15, 2025, the President signed into law the Full-Year Continuing Appropriations and Extensions Act, 2025 that Congress passed on March 14, 2025, which extended these pandemic-era telehealth waivers for Medicare beneficiaries through September 30, 2025.
Under the 2025 PFS Final Rule, the 2.93% increase to the 2024 PFS CF expired and CMS seeks to impose an estimated 0.05% adjustment based on changes in work relative value units (RVUs) for certain services. As a result, the 2025 PFS Final Rule implements a reimbursement reduction of 2.83%, with a CF of $32.35, which is a reduction from the 2024 CF of $33.29. The 2025 PFS Final Rule adopts a 3.6% increase to the threshold for coding modifier requirements for PT and SLP combined, totaling $2,410 for 2025 with the same threshold for OT services. The threshold for targeted medical review for PT and OT (combined) and SLP is expected to remain at $3,000 through 2027.
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While the OBBB does not affect the 2025 PFS Final Rule, the OBBB did provide a one-year 2.5% increase to the conversion factor for services provided between January 1, 2026 and January 1, 2027. On July 14, 2025, CMS issued the 2026 PFS Proposed Rule (2026 PFS Proposed Rule), which increases Medicare reimbursement for provider services by a 2.5% increase in the conversion factor as set forth in the OBBB. The 2026 PFS Proposed Rule contains numerous significant changes regarding payment methods and models, encourages care coordination, reduces collection and reporting of data measurements, and continues certain telehealth flexibilities that began during the COVID-19 pandemic.
The 2025 PFS Final Rule also adopts a regulatory change that allows physical therapy assistants and occupational therapy assistants to be generally supervised by physical therapists and occupational therapists, respectively, in private practice, non-institutional settings, allowing greater flexibility in billing for those assistants’ services. Additionally, the 2025 PFS Final Rule excepts a therapist-established initial plan of care (POC) for PT, OT, or SLT services from requiring a physician or non-physician provider’s (NPP’s) signature, provided that (1) the patient’s physician or NPP referred the patient to the therapist and (2) the therapist has evidence that the POC was transmitted to the patient’s physician or NPP within 30 days of the patient’s initial evaluation. This flexibility applies only to the initial certification.
Finally, the 2025 PFS Final Rule reduces COVID-19 PHE-era telehealth flexibilities beginning on January 1, 2025, which would have taken effect without the above-described acts of Congress. Under this final rule, absent the subsequent Congressional acts, certain restrictions on telehealth that existed prior to the COVID-19 PHE will go back into effect: most geographic and site-of-service restrictions to telehealth will return, while physicians can still provide telehealth from home, and can provide audio-only telehealth communication in specific circumstances where the patient is unable to use video technology. CMS is also establishing new coding and payment for caregiver training services, including training services provided through eligible telehealth means.
Programs of All-Inclusive Care for the Elderly
The requirements under the Programs of All-Inclusive Care for the Elderly (PACE) provide greater operational flexibility and update information under the Medicare and Medicaid programs, including leniency in compliance with program requirements during and after a 3-year trial period and relieving restrictions placed on the team that assesses and provides for the needs of each PACE participant. Further, non-physician primary care providers can provide certain services in place of primary care physicians. The final rule, which went into effect on April 3, 2023, requires the collection of data by Medicare Advantage organizations and their service providers and the submission of data to CMS for risk adjustment data validation (RADV) audits. The purpose of these RADV audits is to maintain the accuracy of risk-adjusted payments made to Medicare Advantage organizations.
In 2024, CMS issued a new prescription drug event (PDE) reporting requirements for PACE organizations to receive manufacturer discounts for drugs provided through Medicare Part D as provided for in the Inflation Reduction Act of 2022 (IRA). The additional PDE information must be submitted beginning January 1, 2025. In June of 2024, CMS also updated its statement of rights for PACE participants.
Decisions Regarding Skilled Nursing Facility Payment
Reimbursement rates and rules are subject to frequent change that historically, have had a significant effect on our revenue. The federal government and state governments continue to focus on efforts to curb spending on healthcare programs such as Medicare and Medicaid. We are not able to predict the outcome of the legislative process. We also cannot predict the extent to which proposals will be adopted or, if adopted and implemented, what effect, if any, such proposals and existing new legislation will have on us. Efforts to impose reduced allowances, greater discounts and more stringent cost controls by government and other payors are expected to continue and could adversely affect our business, financial condition and results of operations.
These include statutory and regulatory changes, rate adjustments (including retroactive adjustments), administrative or executive orders and government funding restrictions influenced by budgetary or political pressures, may materially adversely affect the rates at which Medicare reimburses us for our services. Implementation of these and other types of measures has in the past, and could in the future, result in substantial reductions in our revenue and operating margins. For a discussion of historic adjustments and recent changes to the Medicare program and other reimbursement rates, see Part II, Item 1A Risk Factors under the headings Risks Related to Our Business and Industry.
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Patient Protection and Affordable Care Act (ACA)
Various healthcare reform provisions became law upon enactment of the ACA. The reforms contained in the ACA have affected our independent subsidiaries in some manner and are directed in large part at increased quality and cost reductions. Several of the reforms are very significant and could ultimately change the nature of our services, the methods of payment for our services and the underlying regulatory environment.
The IRA, which continued and expanded certain provisions of the ACA, extended the premium subsidies paid by the federal government, until the end of 2024, resulting in subsidies being available to offset or reduce the costs of private health insurance policies for qualifying individuals. This may aid older patients in obtaining or keeping their health insurance in order to pay for long-term care services. The CAA 2023 revised the funds available to fund Medicare in 2023 and deferred the PAYGO sequestration of Medicare expenses.
The changes in the Presidential Administration may significantly alter the current health care regulatory framework, payment activity, and impact our business and the health care industry, including any repeals, curtailments, extensions or expansions of certain ACA provisions, included, but not limited to recent rulemaking activity regarding ACA Section 1557's anti-discrimination provisions. We continually monitor these developments so we can respond to the changing regulatory environment impacting our business.
On July 4, 2025, the OBBB was enacted into law and intends to be a budget reconciliation law that by 2028 may significantly change the automatic reenrollment process for ACA marketplace health plans and impose work requirements as a condition of Medicaid eligibility, among other things. The OBBB reflects broader legislative efforts to roll back provisions of the ACA, and its enactment along with ongoing executive actions that run counter to the ACA, could reduce the availability of insurance coverage and may affect the population and payer mix of our independent subsidiaries.
Requirements of Participation
CMS has requirements that providers, including SNFs, must meet in order to participate in the Medicare and Medicaid Programs. Some of these requirements can be burdensome and costly. One such requirement of participation in the Medicare and Medicaid programs involves limitations around the use of pre-dispute, binding arbitration agreements by SNFs. CMS has historically issued guidance and direction around arbitration that must be satisfied for any admission agreement to be enforceable.
Phase 2 and 3 of the Requirements of Participation focuses on: (1) resident abuse and neglect; (2) admission, transfer and discharge; (3) mental health and substance abuse disorders; (4) staffing sufficiency; (5) residents’ rights; (6) potential inaccurate diagnoses or assessments; (7) prescription and use of pharmaceuticals; (8) infection prevention and control; (9) arbitration of disputes between facilities and residents; (10) psychosocial outcomes and related severity; and (11) the timeliness and completion of state investigations.
In 2022, CMS updated the Medicare Requirements of Participation for SNFs, to modify the requirements associated with a facility's physical environment to minimize unnecessary renovation expenses and avoid closure of SNFs due to the related expense. CMS "grandfathered" certain facilities and will allow SNFs that were participating in Medicare before July 5, 2016 and that previously used the Fire Safety Evaluation System (FSES) to continue using the 2001 FSES mandatory values when determining compliance with applicable standards. CMS also updated the Requirements of Participation to revise existing qualification requirements for directors of food and nutrition services in SNFs, while "grandfathering" in directors with two or more years of experience and certain minimum training in food safety so they may continue in that role without satisfying further educational requirements.
In 2023, CMS revised the survey resources that CMS and state surveyors use in evaluating SNFs’ compliance with federal Requirements for Participation. This revision incorporated changes to CMS’s focused infection control survey item, which CMS had removed in favor of standard infection control survey measures. These updates provided more information for state surveyors to utilize when evaluating SNFs’ compliance with the Medicare Requirements of Participation, as well as included guidance for facilities on operationalizing compliance with these requirements based on how surveyors would measure and evaluate facility performance.
CMS issued comprehensive updates to the State Operations Manual (Appendix PP) that took effect on April 28, 2025. These updates revised surveyor guidance across multiple areas, including infection control, staffing, PBJ reporting, psychotropic medication use, and medical director oversight responsibilities. These revisions are intended to enhance survey consistency and align with CMS’s broader focus on care quality and resident outcomes.
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Additionally, CMS issued guidance effective March 24, 2025, which took effect on April 28, 2025, clarifying that SNFs may not include pre-dispute, binding arbitration provisions or third-party financial guarantee requirements in admission agreements. If these provisions are not removed, they may result in survey citations and potential penalties for non-compliant SNFs.
Civil and Criminal Fraud and Abuse Laws and Enforcement
Various complex federal and state laws exist which govern a wide array of referrals, relationships and arrangements, and prohibit fraud by healthcare providers. Governmental agencies are devoting increasing attention and resources to such anti-fraud efforts. The Balanced Budget Act of 1997 expanded the penalties for healthcare fraud. Additionally, the government or those acting on its behalf may bring an action under the FCA, alleging that a healthcare provider has defrauded the government by submitting a claim for items or services not rendered as claimed, which may include coding errors, billing for services not provided and submitting false or erroneous cost reports. The FCA clarifies that if an item or service is provided in violation of the AKS, the claim submitted for those items or services is a false claim that may be prosecuted under the FCA as a false claim. Under the qui tam or “whistleblower” provisions of the FCA, a private individual with knowledge of fraud may bring a claim on behalf of the federal government and receive a percentage of the federal government’s recovery. Many states also have a false claim prohibition that mirrors or closely tracks the federal FCA.
Federal law also provides that the OIG has the authority to exclude individuals and entities from federally funded health care programs on a number of grounds, including, but not limited to, certain types of criminal offenses, licensure revocations or suspensions and exclusion from state or other federal healthcare programs. CMS can recover overpayments from health care providers up to six years following the year in which payment was made.
Over the years, the OIG have released the result of audit findings of Medicare overpayments, potentially affecting SNFs. These investigatory actions by OIG demonstrate its increased scrutiny into post-hospital SNF care provided to beneficiaries and may encourage additional oversight or stricter compliance standards. The DOJ has indicated that its healthcare enforcement trends would emphasize opioid prescribing, Medicare Advantage and managed care plan fraud, and COVID-19 related fraud, including under various relief programs available during and in conjunction with the pandemic. In November of 2023, OIG added to its work plan an audit of nursing homes' nurse staffing hours reported in CMS's payroll-based journal, for which OIG expects to issue a report in FY 2025. In addition, the OIG identified the following areas as its "key goals" for oversight: (1) protecting residents from fraud, abuse, neglect, and promoting quality of care; (2) promoting emergency preparedness and emergency response efforts: (3) strengthening frontline oversight; and (4) supporting federal monitoring of nursing homes to mitigate risks to residents.
In 2024, the OIG added to its work plan a series of studies that include: (a) the use of the National Background Check Program (NBCP) in conducting background checks of prospective long-term care provider employees to prepare a report regarding the cost of background checks, number of applicants who received background checks and disqualification of employees during and after NBCP participation; (b) the use of Medicaid supplemental payments for use in satisfying the state’s obligations to pay nursing facilities any amounts due under the state’s nursing facility upper payment limit; and (3) the assessment of the implementation of the Special Focus Facility Program for nursing facilities based on facilities that participated in the program from 2013 through 2022.
The OIG continues to increase its oversight of skilled nursing facility operations through its active Work Plan, with several new audits and studies that may impact SNFs. In June 2025, OIG announced a new evaluation of whether SNFs are properly engaging medical directors and accurately reporting medical directors’ hours of service in CMS’s PBJ reporting system. This review will examine whether medical directors are meeting regulatory expectations and whether reported hours reflect actual services provided, with potential implications for regulatory compliance and reimbursement oversight.
Separately, OIG announced an audit assessing whether SNFs are inappropriately billing Medicare Part D for prescription drugs provided during a Medicare Part A stay, as the OIG previously found potential overpayments of more than $465 million in Part D payments for drugs that were already covered under Part A. OIG is also reviewing state-level enforcement of minimum spending requirements for direct resident care in nursing facilities, which could affect state Medicaid reimbursement mechanisms and facility-level allocation of resources. In addition, a May 2025 OIG report identified deficiencies in how CMS shares PBJ staffing data with state survey agencies, limiting surveyors’ ability to assess RN staffing compliance and potentially delaying corrective action.
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Our business model is based in part on serving higher acuity patients. Over time our overall patient mix has consistently shifted to higher acuity in most facilities we operate. Further scrutiny of high-acuity residents and the treatment they receive may affect our business and subject us to increased governmental oversight. We also use specialized care-delivery software that assists our caregivers in more accurately capturing and recording services in order to, among other things, increase reimbursement to levels appropriate for the care actually delivered. These efforts may place us under greater scrutiny with the OIG, CMS, our fiscal intermediaries, recovery audit contractors and others.
Other Federal Legislation and Healthcare Reform
Five-Star Quality Reporting Metrics — The Quality Payment Program (QPP) was created under the Medicare Access and Children's Health Insurance Program (CHIP) Reauthorization Act of 2015. This program was based on the Merit-based Incentive Payment System (MIPS) or the use of Alternative Payment Models (APM), which relied on quality data CMS gathered and evaluated using the Five-Star Quality Rating system, which includes a rating of one to five in various categories. These categories include (but are not limited to) the results of surveys conducted by state inspectors, other health inspection outcomes, staffing, spending, readmissions and stay durations; the data collected and its weighting in determining a rating on a scale of one to five stars is subject to periodic and ongoing revision, re-balancing and adjustment by CMS to reflect market conditions and CMS’s priorities in patient care. Since 2020, CMS’s measurement of the data reported by providers, including SNFs, has become more competitive and resulted in a reduction of four- and five-star rankings available under CMS’s Five-Star Quality Rating system.
The Five-Star Quality reporting system for nursing homes is displayed on CMS's consumer-based Nursing Home Compare website, along with a consumer alert icon next to nursing homes that have been cited for incidents of abuse, neglect, or exploitation on the Nursing Home Compare website. The Nursing Home Compare website is updated monthly with CMS’s refresh of survey inspection results on that website. Additionally, the Nursing Home Compare website publishes ownership information for Medicare-enrolled nursing facilities based on disclosures made to CMS from 2016 through 2022 due to mergers, acquisitions, or other changes in ownership, to allow for the identification of common ownership of nursing facilities. The Five Star Quality Ratings incorporated staffing data such as staff tenure and SNF weekend staffing beginning with the October 2022 refresh of the Nursing Home Compare website.
In June 2025, CMS announced upcoming modifications to Nursing Home Care Compare platform and the Five Star Quality Rating system, set to take effect on July 30, 2025. Under these changes, CMS discontinued the use of the third most recent standard health survey in calculating the health inspection rating, relying instead on only the two latest surveys. The most recent survey will be weighted at 75% of the total score, while the second most recent survey result will contribute to the remaining 25% of the score. Additionally, CMS will begin publishing aggregated five-star performance metrics for nursing home chains and will remove COVID-19 vaccination measures from facility profile pages.
CMS is also updating the long-stay antipsychotic measure to incorporate data from Medicare and Medicaid claims as well as Medicare Advantage encounter records. This updated measure, effective January 28, 2026, is expected to increase the reported national antipsychotic rates from 14.6% to 17.0%. We expect that this change will result in varying changes to individual facilities' ratings.
However, starting July 30, 2025, updates to Nursing Home Care Compare will be temporarily paused until October 2025 as CMS transitions to a cloud-based Internet Quality Improvement and Evaluation System (iQIES) for survey data management. This pause is intended to give CMS time to validate the accuracy and integrity of the data and ensure that publicly reported information meets quality standards before resuming updates to the five-star ratings. The move to iQIES, along with the other changes, may also result in further adjustments to the rating system and could prompt additional audits by CMS or state surveyors.
In January of 2025, CMS unfroze four of its quality measures that it previously froze with its April 2024 refresh. CMS updated these measures to reflect recent changes in the minimum data set collected from SNFs. First, the measure of percentage of SNF residents who are at or above an expected ability to care for themselves and move around at discharge replaced the measure of percentage of residents who made improvements in function during a short stay. Second, the following measures have been respecified: (1) percentage of residents whose need for help with activities of daily living has increased during a long stay, and (2) percentage of residents whose ability to walk independently worsened during a long stay. Finally, the measure of percentage of all residents with pressure ulcers (regardless of stay duration) will replace the measure of percentage of high-risk residents with pressure ulcers during a long stay. Additionally, CMS recalculated the scoring cut points for these four measures to obtain an even distribution of scores. Additionally, the quality measure rating cut points were also adjusted to maintain their same overall distribution of ratings across measured facilities.
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In July 2024, CMS updated the Nursing Home Five-Star Quality Rating System to reflect several key changes. The staffing case-mix methodology now uses the PDPM model, replacing measures that were previously frozen in April. CMS also extended the definition of staffing turnover. Employees are now considered “turned over” if they haven’t worked for 90 consecutive days, up from 60. Additionally, CMS revised risk-adjustment models for claims-based measures to focus on residents’ functional abilities and goals, rather than just their status. To maintain consistency in star ratings, CMS adjusted thresholds so the distribution of 4- and 5-star ratings remains stable.
In April 2024, CMS froze four quality measures and three staffing measures to prevent changes until a subsequent date. It also updated the staffing rating methodology to assign the lowest score to facilities that fail to submit or submit incorrect staffing data.
Ownership Transparency Final Rule — In November 2023, CMS finalized a rule requiring SNFs to publicly disclose expanded information regarding their ownership and management structure, including the identity of any person or legal entity that: (1) exercises financial, operational, or managerial control over any facility or part of a facility, or provides services to a facility that include its policies and procedures or cash management services; (2) leases or subleases real property to the facility, or owns 5% or more of the real property’s total value; and (3) provides any management or administrative services (or consults regarding the same), or provides accounting or financial services to SNFs. The rule also expands ownership and control interest disclosures to include information about each member of the facilities governing body, individuals or entities serving as officers, directors, members, partners or managing employees, and a comprehensive breakdown of the organizational structure of any additional disclosable party that is not a natural person along with a description of their relationships with the facility. Starting in November of 2024, all SNFs must comply with these requirements. To facilitate compliance, CMS now requires SNFs to submit a new "SNF Attachment" to the standard CMS form 885A during revalidation. On July 23, 2025, CMS announced that all SNFs must revalidate their enrollment using this new attachment by January 1, 2026, regardless of their previous revalidation date.
Certain states have adopted laws reflecting their concerns regarding ownership transparency. For example, Iowa adopted laws requiring disclosure of ownership information not previously required for licensure to promote transparency in 2023. Additionally, in March 2024, the California Department of Health Care Access and Information of the California Health and Human Services Agency issued its notice of approval of regulatory action establishing policies and procedures that implement financial and ownership transparency requirements for California-licensed SNFs that are required by California law passed in 2021. Additionally, on July 27, 2025, the State of Washington enacted H.B. 1686, directing state agencies to develop a plan and recommendations for creating a registry of health care entities, including SNFs.
State-level Legislation and Healthcare Reform
The states where we operate have varied legislative priorities and accordingly legislation. These different legislative priorities vary for many reasons but ultimately result in the operations of our independent subsidiaries having different profiles for risk, regulatory burden, taxation and benefits based on the state in which the facility operates. By way of example, in 2022, California’s Governor signed into law the Skilled Nursing Facility Ownership and Management Reform Act of 2022. This law increased the authority of the California Department of Public Health and changed several provisions regarding SNF licensing in the State of California. These changes include eliminating previous regulatory provisions that permitted SNFs to operate in advance of receiving their formal license from the State. This law also requires SNF license applicants to disclose additional information in connection with a license application and evaluates more data regarding the applicant’s prior operations, including prior citations, CMS sanctions and legal proceedings against the applicant or other facilities owned or managed by the applicant before issuing a license. In contrast, on June 20, 2025, Texas passed SB 457 which will allow a new operator to receive uninterrupted Medicaid payments during the change of ownership process beginning on September 1, 2025. These examples, highlight the varied approaches that occur from state to state, with different approaches making it either easier or harder for our independent subsidiaries to operate. In addition, the impacts of the OBBB, as discussed above, will create varying approaches by state legislatures to address the provisions of such bill. We continue to monitor and advocate for positions that protect the interest of our employees, residents and those of our independent subsidiaries at all levels of government, particularly at the state and local levels.
The Impact of United States Supreme Court Decisions
On June 28, 2024, the United States Supreme Court issued its opinion in Loper Bright Enterprises v. Raimondo, deciding to vacate and remand decisions by the United States Courts of Appeals that relied on the Supreme Court’s own 1984 precedent in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., which sometimes required courts to defer to “permissible” agency interpretations of the statutes those agencies administered and enforced—a legal doctrine known as the “Chevron doctrine.” In Loper, the Supreme Court had to decide whether it should overrule or clarify the Chevron doctrine based on its application more than 40 years after its creation, and the Supreme Court chose to overrule it.
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The Chevron doctrine required courts to use a two-step process to interpret statutes administered by federal agencies. After determining that the Chevron doctrine may apply to a dispute before it, a federal court must assess whether Congress has directly spoken to the precise question at issue. If (and only if) the congressional intent of the statute is clear, that is the end of the inquiry as to the statute’s meaning. If the court determines that the statute is silent or ambiguous regarding the issue at hand, then the Chevron doctrine requires the court to defer to the agency’s interpretation if it “is based on a permissible construction of the statute.”
The Supreme Court’s Loper decision found that the Chevron doctrine is incompatible with the federal Administrative Procedure Act’s requirement for courts to exercise their independent judgment in deciding whether a federal agency has acted within its statutory authority. It further held that courts may not defer to an agency interpretation of a statute merely because the statute is ambiguous, as it is the responsibility of the court, rather than an agency that administers or acts under a statute, to discern the statute’s meaning. The Supreme Court reasoned that allowing agencies to interpret the laws they enforce or act under, rather than reserving that activity for the courts, was an impermissible delegation of an activity reserved to the courts.
While the decisions at issue in Loper pertained to fishing regulations promulgated by the Department of Commerce, the Chevron doctrine’s significance to the highly regulated field of healthcare is profound. The Chevron doctrine is frequently implicated in litigation over healthcare regulation, ranging from rules concerning staffing requirements and the validity of arbitration provisions, to requirements for healthcare workers to be vaccinated. Subsequent analysis has focused on the limits of the Loper decision, including any deference that courts may still afford to administrative agencies when based on agency fact-finding and policymaking, particularly where such power is expressly delegated to the agency by statute. The Loper decision likely will have significant and lasting consequences for the promulgation and enforcement of federal regulations by HHS and CMS, and may bear on the depth and detail of future legislation that is passed and enacted as statutes by Congress so that such laws can be enforced without administrative rulemaking or agency enforcement mechanisms.
Monitoring Compliance in Our Independent Subsidiaries
Governmental agencies and other authorities periodically inspect our independent subsidiaries to assess compliance with various standards, rules and regulations, with potential fines, sanctions and other penalties for noncompliance. Unannounced surveys or inspections generally occur at least annually and may also follow a government agency's receipt of a complaint about a facility. Facilities must pass these inspections to maintain licensure under state law, to obtain or maintain certification under the Medicare and Medicaid programs, to continue participation in the Veterans Administration program at some facilities, and to comply with provider contracts with managed care clients at many facilities. From time to time, our independent subsidiaries, like others in the healthcare industry, may receive notices from federal and state regulatory agencies of an alleged failure to substantially comply with applicable standards, rules or regulations. These notices may require corrective action, may impose civil monetary penalties for noncompliance, and may threaten or impose other operating restrictions on SNFs such as admission holds, provisional skilled nursing license, or increased staffing requirements. If our independent subsidiaries fail to comply with these directives or otherwise fail to comply substantially with licensure and certification laws, rules and regulations, the facility could lose its certification as a Medicare or Medicaid provider or lose its license permitting operation in the State.
Facilities with otherwise acceptable regulatory histories generally are given an opportunity to correct deficiencies and continue their participation in the Medicare and Medicaid programs by a certain date, usually within six months of inspection; however, although where denial of payment remedies are asserted, such interim remedies go into effect much sooner. Facilities with deficiencies that immediately jeopardize patient health and safety and those that are classified as poor performing facilities, however, may not be given an opportunity to correct their deficiencies prior to the imposition of remedies and other enforcement actions. Moreover, facilities with poor regulatory histories continue to be classified by CMS as poor performing facilities notwithstanding any intervening change in ownership, unless the new owner obtains a new Medicare provider agreement instead of assuming the facility's existing agreement. However, new owners nearly always assume the existing Medicare provider agreement due to the difficulty and time delays generally associated with obtaining new Medicare certifications, especially in previously certified locations with sub-par operating histories. Accordingly, facilities that have poor regulatory histories before acquisition by our independent subsidiaries and that develop new deficiencies after acquisition are more likely to have sanctions imposed upon them by CMS or state regulators.
In addition, CMS has increased its focus on facilities with a history of serious or sustained quality of care problems through the Special Focus Facility (SFF) program. SFFs receive heightened scrutiny and more frequent regulatory surveys. Failure to improve the quality of care can result in fines and termination from participation in Medicare and Medicaid. A facility “graduates” from the SFF program once it demonstrates significant improvements in quality of care that are continued over a defined period of time.
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In October 2022, CMS increased penalties for SFFs that fail to improve their performance upon further inspection by CMS, increasing the standards SFFs must meet to graduate from the SFF program, maintaining heightened oversight of any SFF for a period of three years after it graduates and increasing the technical assistance CMS provides to SFFs.
Sanctions such as denial of payment for new admissions often are scheduled to go into effect before surveyors return to verify compliance. Generally, if the surveyors confirm that the facility is in compliance upon their re-evaluation, the sanctions never take effect. However, if they determine that the facility is not in compliance, the denial of payment goes into effect retroactive to the date given in the original notice, leaving operators with the task of deciding whether to continue accepting patients after the potential denial of payment date--risking the retroactive denial of revenue. Some of our independent subsidiaries have been or will be in denial of payment status due to findings of continued regulatory deficiencies, resulting in an actual loss of revenue associated with patients admitted after the denial of payment date. Additional sanctions could ensue and, if imposed, could include various remedies up to and including decertification.
CMS has undertaken several initiatives to increase or intensify Medicaid and Medicare survey and enforcement activities, including federal oversight of state surveyors. CMS is taking steps to focus more survey and enforcement efforts on facilities with findings of substandard care or repeat violations of Medicaid and Medicare standards and to identify multi-facility providers with patterns of noncompliance. CMS is also increasing its oversight of state survey agencies and requiring state agencies to use enforcement sanctions and remedies more promptly when substandard care or repeat violations are identified, to investigate complaints more promptly, and to survey facilities more consistently.
Regulations Regarding Financial Arrangements
We are also subject to federal and state laws that regulate financial arrangement by and between healthcare providers, such as the federal and state anti-kickback laws, the Stark laws, and various state anti-referral laws.
The Social Security Act prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce the referral of an individual, in return for recommending, or to arrange for, the referral of an individual for any item or service payable under any federal healthcare program, including Medicare or Medicaid. The OIG has issued regulations that create “safe harbors” for certain conduct and business relationships that are deemed protected under the Social Security Act. In order to receive safe harbor protection, all of the requirements of a safe harbor must be met. The fact that a given business arrangement does not fall within one of these safe harbors does not render the arrangement per se illegal. Business arrangements of healthcare service providers that fail to satisfy the applicable safe harbor criteria, if investigated, will be evaluated on a case-by-case basis based upon all facts and circumstances and risk increased scrutiny and possible sanctions by enforcement authorities.
Violations of the Social Security Act can result in inflation-adjusted criminal penalties of more than $0.1 million and ten years imprisonment. It can also result in inflation-adjusted civil monetary penalties of more than $0.1 million per violation and an assessment of up to three times the total amount of remuneration offered, paid, solicited, or received. It may also result in an individual's or organization's exclusion from future participation in federal healthcare programs. State Medicaid programs are required to enact an anti-kickback statute. Many states in which our independent subsidiaries operate have adopted or are considering similar legislative proposals, some of which extend beyond that state's Medicaid program, to prohibit the payment or receipt of remuneration for the referral of patients regardless of the source of payment for the care.
Additionally, the "Stark Law" of the Social Security Act provides that a physician may not refer a Medicare or Medicaid patient for a “designated health service” to an entity with which the physician or an immediate family member has a financial relationship unless the financial arrangement meets an exception under the Stark Law or its regulations. Designated health services include, in relevant part, inpatient and outpatient hospital services, PT, OT, SLP, durable medical equipment, prosthetics, orthotics and supplies, diagnostic imaging, and home health services. Under the Stark Law, a “financial relationship” is defined as an ownership or investment interest or a compensation arrangement. If such a financial relationship exists and does not meet a Stark Law exception, the entity is disallowed from seeking payment under the Medicare or Medicaid programs or from collecting from the patient or other payor. Statutory and regulatory exceptions and exemptions to this exist and have specific rules that must be followed to qualify for such exception or exemption. Any funds collected for an item or service resulting from a referral that violates the Stark Law are not eligible for payment by federal healthcare programs and must be repaid. Violations of the Stark Law may result in the imposition of civil monetary penalties, including, treble damages. Individuals and organizations may also be excluded from participation in federal healthcare programs for Stark Law violations. Many states have enacted healthcare provider referral laws that go beyond physician self-referrals or apply to a greater range of services than just the designated health services under the Stark Law.
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Regulations Regarding Patient Record Confidentiality
Health care providers are also subject to laws and regulations enacted to protect the confidentiality of patient health information and patients' right to access such information. For example, HHS has issued rules pursuant to HIPAA, including the Health Information Technology for Economic and Clinical Health (HITECH) Act which governs our use and disclosure of protected health information of patients. We and our independent subsidiaries have established policies and procedures to comply with HIPAA privacy and security requirements and our independent subsidiaries have adopted and implemented HIPAA compliance plans, which we believe comply with the HIPAA privacy and security regulations, which impose significant costs for ongoing compliance activities.
There are numerous other laws and legislative and regulatory initiatives at the federal and state levels addressing privacy and security concerns. Our independent subsidiaries are also subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA.
On January 17, 2024, CMS published the CMS Interoperability and Prior Authorization Final Rule (Interoperability Final Rule), which affects the data standards and application programming interfaces (APIs) used by entities that are payors for our services, including but not limited to Medicare Advantage organizations, Medicaid fee-for-service providers, and MCOs. This new rule requires these payor entities to adopt new patient access APIs beginning January 1, 2026, and to complete implementation of both patient and provider access APIs by January 1, 2027, to facilitate the sharing of payor information with payors and providers. While the purpose of this final rule is predominantly oriented to sharing information in the clinical setting and expediting the exchange of prior authorization data, this new rule may have implications for our business and how information is shared among our independent subsidiaries that participate in these programs, the payors, residents, and residents’ families involved in their care.
Antitrust Laws
We are also subject to federal and state antitrust laws. Enforcement of the antitrust laws against healthcare providers is common, and antitrust liability may arise in a wide variety of circumstances, including third party contracting, physician relations, joint venture, merger, affiliation and acquisition activities. On February 3, 2023, the DOJ’s Antitrust Division withdrew its support for three policies that had been jointly created by the DOJ and the Federal Trade Commission (FTC) in 1993, 1996, and 2011, announcing instead, without providing further alternative guidance, that the DOJ would take a case-by-case enforcement approach to evaluate conduct in the healthcare industry, citing that the previous policies were outdated and overly permissive. Similarly, on July 14, 2023, the FTC withdrew two antitrust policy statements related to enforcement in healthcare markets. Moving forward, the FTC will evaluate mergers and conduct in healthcare markets on a case-by-case basis using principles of antitrust enforcement and competition policy.
On July 19, 2023, the DOJ and FTC released a draft joint statement of antitrust policy that outlines 13 guidelines to be used when determining if a merger is unlawfully anticompetitive under antitrust laws. These guidelines cover various aspects of antitrust enforcement relevant to SNF and senior living facilities, such as market concentration, competition between firms, risk of coordination, elimination of potential entrants, control of products or services, vertical mergers, dominant positions, trends toward concentration, series of multiple acquisitions, multi-sided platforms, competing buyers, partial ownership or minority interests and overall impact on competition. The draft joint statement also includes detailed sections on the application of the guidelines, defining relevant markets and approaches to rebuttal evidence. These proposed statements are not exhaustive, and the DOJ and FTC may focus on one or multiple guidelines depending on the specific circumstances of each merger. These proposed general statements of antitrust policy, once finalized, may be a prelude to a new joint statement of healthcare antitrust policy of the DOJ and FTC, with the agencies’ finalized general statements providing insight into whether healthcare-specific statements will be issued. This development and potential new guidance regarding DOJ and FTC antitrust policy increases risk and uncertainty regarding transactions that may be subject to criminal and civil enforcement by federal and state agencies, as well as by private litigants.
Further change is expected with respect to the DOJ and FTC’s antitrust policies due to the outcome of the 2024 presidential election, including as to how they relate to healthcare. As a result, these changes to the DOJ and FTC’s antitrust policies may be changed materially, not implemented, or reverted to prior statements that were withdrawn in February of 2023.
Several states in which we operate have enacted laws that mirror the Federal Hart-Scott-Rodino (HSR) Act. The HSR Act mandates that parties involved in certain transactions must provide advance notice to the Department of Justice (DOJ) and the Federal Trade Commission (FTC) to obtain clearance, ensuring the transaction complies with federal antitrust regulations. Similarly, these state-level HSR analogues require parties to notify state authorities and secure approval before finalizing mergers or acquisitions.
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This regulatory trend has accelerated in 2025, with more states actively considering or enacting such legislation. In some cases, state requirements align closely with the federal HSR Act, simply requiring that a copy of the federal HSR filing be submitted to a designated state agency. However, other states have established distinct or more rigorous standards, sometimes necessitating state approval for transactions that would not trigger federal reporting obligations under the HSR Act.
Among the states where we operate, California implemented its relevant laws in 2024, and Washington expanded the scope of its HSR-like requirements with new legislation effective July 27, 2025. Nevada, while it did not pass a comprehensive HSR analogue, does require notification or approval for certain healthcare transactions prior to closing. These evolving state regulations add new layers of compliance for mergers and acquisitions, particularly in the healthcare sector.
California Office of Health Care Affordability
The California Office of Health Care Affordability (OHCA), under California law, requires healthcare entities to provide OHCA with written notice of proposed qualifying agreements or transactions (referred to as a “Material Change Notice”) at least 90 days prior to entering into the agreement or transaction. Reportable transactions are determined based on a variety of factors outlined in the applicable regulations.
OHCA may coordinate with other state agencies, which may include the California Attorney General, California Department of Managed Care and Department of Insurance, to address the potential consequences of the agreement or transaction on the affected market.
If OHCA determines that a proposed agreement or transaction may have a risk of significant impact on certain aspects of the healthcare market, OHCA will conduct a Cost and Market Impact Review (CMIR) to analyze the issue in more detail. This CMIR process involves a deeper analysis than OHCA’s initial review of the information contained in a reporting party’s Material Change Notice. OHCA’s CMIR process may result in findings of anti-competitive effects that could generate a referral to the California Attorney General for further action.
From March 2025 through September 2025, we have cooperated with requests for information from OHCA regarding specific components of a proposed transaction in relation to purported concerns about market impact. Despite this continued cooperation, on October 10, 2025, OHCA issued an investigatory subpoena to us to produce (among other things) certain confidential and proprietary documents. We are reviewing the subpoena and will respond within the applicable time period.
Americans with Disabilities Act (ADA)
Our independent subsidiaries must also comply with the ADA, and similar state and local laws to the extent that the facilities are "public accommodations" as defined in those laws. The obligation to comply with the ADA and other similar laws is an ongoing obligation, and the independent subsidiaries continue to assess their facilities relative to ADA compliance and make appropriate modifications as needed.
Civil Rights
The Office for Civil Rights (OCR) for HHS issued guidance to hospitals and long-term care facilities, emphasizing their obligation under CMS regulations to ensure non-discriminatory visitation policies, especially during public health emergencies. This guidance, part of the U.S. National Strategy to Counter Antisemitism, clarifies that these facilities cannot discriminate based on religion or other classes or characteristics protected against discrimination under federal civil rights laws. The guidance includes examples where non-compliance occurred, such as unequal treatment based on religious affiliation or dietary restrictions, and stricter screening processes for certain religious groups. OCR offers assistance to facilities to obtain compliance with these standards and encourages residents and other affected individuals to file complaints with OCR for potential administrative or civil action in cases of civil rights violations. OCR has been increasingly involved in the monitoring and enforcement of patient and resident rights, particularly under rulemaking completed under Section 1557 of the ACA. However, recent litigation and political efforts have seen a reduction in enforcement of Section 1557. Specifically, HHS announced that it would not enforce certain regulations promulgated under Section 1557 related to discrimination based on sex, gender identity, and pregnancy status.
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Real Estate Investment Trust (REIT) Qualification
We elected for Standard Bearer to be taxed as a REIT for U.S. federal income tax purposes. Standard Bearer's qualification as a REIT will depend upon its ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code, relating to, among other things, the sources of its gross income, the composition and value of its assets, distribution levels to its shareholders and the concentration of ownership of its capital stock. We believe that Standard Bearer is organized in conformity with the requirements for qualification and taxation as a REIT under the Code and that its manner of operation has and will enable it to continue to meet the requirements for qualification and taxation as a REIT.
REGULATIONS SPECIFIC TO SENIOR LIVING COMMUNITIES AND ANCILLARY SERVICES
As previously mentioned, senior living services revenue, which accounted for 2.2% of total revenue, is primarily derived from private pay residents and senior living revenue derived from Medicaid funds. Thus, some of the regulations discussed above applicable to Medicaid providers, also apply to senior living.
A majority of states provide, or are approved to provide, Medicaid payments for personal care and medical services to some residents in licensed senior living communities. As rates paid to senior living community operators are generally lower than rates paid to SNF operators, some states use Medicaid funding of senior living services as a means of lowering the cost of services for residents who may not need the higher level of health services provided in SNFs. States that administer Medicaid programs for services in senior living communities are responsible for monitoring the participating communities and, as a result of the growth of senior living in recent years, these states have adopted licensing standards applicable to senior living communities. Similarly, states that elect to provide Medicaid coverage for an expanded range of HCBS services for individuals who do not require institutional care may also offer lower rates of reimbursement for those HCBS services than services provided in SNFs. This cost differential may make those HCBS services more attractive to Medicaid programs than SNF-based care.
CMS has continued to commence a series of actions to increase its oversight of state quality assurance programs for senior living communities and has provided guidance and technical assistance to states to improve their ability to monitor and improve the quality of services paid through Medicaid waiver programs. CMS is encouraging state Medicaid programs to expand their use of home and community-based services as alternatives to facility-based services, pursuant to provisions of the ACA, and other authorities, through the use of several programs.
The types of laws and statutes affecting the regulatory landscape of the post-acute industry continue to expand and the pressure to enforce those laws by federal and state authorities continues to grow as well. In order to operate our businesses, we and our independent subsidiaries must comply with federal, state and local laws from healthcare including provisions regarding patient safety, staffing, and prescription drugs to environmental issues. Changes in the law or new interpretations of existing laws may have an adverse impact on our methods and costs of doing business.
RESULTS OF OPERATIONS
Our total revenue for the three months ended September 30, 2025 increased $214.6 million, or 19.8%, compared to the three months ended September 30, 2024, while our diluted GAAP earnings per share grew by 6.0%, from $1.34 to $1.42, compared to the three months ended September 30, 2024. Our Same Facilities occupancy increased by 2.1% to 83.0% during the three months ended September 30, 2025 compared to the same period in 2024, demonstrating our ability to gain additional market share even at our more mature operations. Further, our Transitioning Facilities occupancy increased by 3.6% to 84.4% compared to the same period in 2024, highlighting our ability to organically grow and transform underperforming operations that we have acquired.
Throughout most of our history, our business has been affected by seasonal fluctuations in occupancy and acuity, which are most prominent when comparing the summer and winter months of the calendar year. For skilled nursing occupancy and skilled mix, we typically experience stronger occupancy and acuity during the first and fourth quarters and softening in the second and third quarters. Additionally, we historically have acquired operations with lower occupancy and skilled mix. As these operations become "operations of choice" in each of their respective healthcare markets, we typically see both occupancy and skilled mix increase.
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We have continued to make progress on targeted initiatives related to increasing occupancy and the level of acuity and complexity of the patients we serve in our facilities, attracting and developing our people and acquiring underperforming skilled nursing operations and integrating them with our proven cultural and operational principles. During the nine months ended September 30, 2025, we added 34 new operations. We consistently experience healthy growth in both revenue and overall results as we continue to work diligently with existing and recently acquired operations so that each operation can reach its full clinical and financial potential.
Our strength remains in our operating model, which empowers each operator to form their own market-specific strategy and adjust to the needs of their local medical communities, including methods for attracting new healthcare professionals into our workforce and retaining and developing existing staff. As we continue to execute on core fundamentals, we continue to see positive trends on both turnover and agency usage across our operations.
The following table sets forth details of operating results for our revenue, expenses and earnings, and their respective components, as a percentage of total revenue for the periods indicated:

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| 2025 |  | 2024 |  | 2025 |  | 2024 |  |
REVENUE: |  |  |  |  |  |  |  |  |
Service revenue | 99.5 | % |  | 99.5 | % |  | 99.5 | % |  | 99.5 | % |  |
Rental revenue | 0.5 |  |  | 0.5 |  |  | 0.5 |  |  | 0.5 |  |  |
TOTAL REVENUE | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  |
Expenses: |  |  |  |  |  |  |  |  |
Cost of services | 80.6 |  |  | 79.5 |  |  | 79.6 |  |  | 79.3 |  |  |
Rent—cost of services | 4.7 |  |  | 5.1 |  |  | 4.8 |  |  | 5.1 |  |  |
General and administrative expense | 5.2 |  |  | 5.2 |  |  | 5.4 |  |  | 5.4 |  |  |
Depreciation and amortization | 2.1 |  |  | 1.9 |  |  | 2.0 |  |  | 1.9 |  |  |
TOTAL EXPENSES | 92.6 | % |  | 91.7 | % |  | 91.8 | % |  | 91.7 | % |  |
Income from operations | 7.4 |  |  | 8.3 |  |  | 8.2 |  |  | 8.3 |  |  |
Other income (expense): |  |  |  |  |  |  |  |  |
Interest expense | (0.2) |  |  | (0.2) |  |  | (0.2) |  |  | (0.2) |  |  |
Interest income | 0.5 |  |  | 0.7 |  |  | 0.5 |  |  | 0.7 |  |  |
Other income | 0.5 |  |  | 0.4 |  |  | 0.3 |  |  | 0.2 |  |  |
OTHER INCOME, NET | 0.8 | % |  | 0.9 | % |  | 0.6 | % |  | 0.7 | % |  |
Income before provision for income taxes | 8.2 |  |  | 9.2 |  |  | 8.8 |  |  | 9.0 |  |  |
Provision for income taxes | 1.7 |  |  | 1.9 |  |  | 2.1 |  |  | 2.0 |  |  |
NET INCOME | 6.5 | % |  | 7.3 | % |  | 6.7 | % |  | 7.0 | % |  |
Less: net income attributable to noncontrolling interests | — |  |  | — |  |  | — |  |  | — |  |  |
Net income attributable to The Ensign Group, Inc. | 6.5 | % |  | 7.3 | % |  | 6.7 | % |  | 7.0 | % |  |

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| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| 2025 |  | 2024 |  | 2025 |  | 2024 |  |
SEGMENT INCOME(1) | (In thousands)
Skilled services | $ | 153,126 |  |  | $ | 128,489 |  |  | $ | 447,061 |  |  | $ | 377,483 |  |  |
Standard Bearer(2) | 9,622 |  |  | 7,274 |  |  | 27,331 |  |  | 21,892 |  |  |
NON-GAAP FINANCIAL MEASURES: |  |  |  |  |  |  |  |  |
PERFORMANCE METRICS |  |  |  |  |  |  |  |  |
Adjusted EBT | $ | 128,721 |  |  | $ | 108,352 |  |  | $ | 371,971 |  |  | $ | 311,141 |  |  |
EBITDA | 128,969 |  |  | 114,442 |  |  | 389,673 |  |  | 326,410 |  |  |
Adjusted EBITDA | 151,090 |  |  | 123,884 |  |  | 435,086 |  |  | 356,766 |  |  |
FFO for Standard Bearer | 19,331 |  |  | 14,758 |  |  | 54,781 |  |  | 43,371 |  |  |
VALUATION METRICS |  |  |  |  |  |  |  |  |
Adjusted EBITDAR | $ | 212,618 |  |  |  |  | $ | 610,885 |  |  |  |  |

(1) Segment income represents operating results of the reportable segments excluding gain and loss on sale of assets, real estate insurance recoveries and losses, impairment charges and provision for income taxes. Included in segment income for Standard Bearer are expenses for intercompany management fees between Standard Bearer and the Service Center and intercompany interest expense. Segment income is reconciled to the Condensed Consolidated Statement of Income in Note 8, Business Segments in Notes to Interim Financial Statements of this Quarterly Report on Form 10-Q.
(2) Standard Bearer segment income includes rental revenue and expenses from our independent subsidiaries.
The following discussion includes references to Adjusted EBT, EBITDA, Adjusted EBITDA, Adjusted EBITDAR and Funds from Operations (FFO) which are non-GAAP financial measures (collectively, the Non-GAAP Financial Measures). Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other provisions of the Securities Exchange Act of 1934, as amended (the Exchange Act), define and prescribe the conditions for use of certain non-GAAP financial information. These Non-GAAP Financial Measures are used in addition to and in conjunction with results presented in accordance with GAAP. These Non-GAAP Financial Measures should not be relied upon to the exclusion of GAAP financial measures. These Non-GAAP Financial Measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business.
We believe the presentation of certain Non-GAAP Financial Measures are useful to investors and other external users of our financial statements regarding our results of operations because:
•they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall performance of companies in our industry without regard to items such as interest income, interest expense and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, capital structure and the method by which assets were acquired; and
•they help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating results.
We use the Non-GAAP Financial Measures:
•as measurements of our operating performance to assist us in comparing our operating performance on a consistent basis;
•to allocate resources to enhance the financial performance of our business;
•to assess the value of a potential acquisition;
•to assess the value of a transformed operation's performance;
•to evaluate the effectiveness of our operational strategies; and
•to compare our operating performance to that of our competitors.
We use certain Non-GAAP Financial Measures to compare the operating performance of each operation. These measures are useful in this regard because they do not include such costs as other expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the amount of debt that we have incurred, whether an operation is owned or leased, the date of acquisition of a facility or business, and the tax law of the state in which a business unit operates.
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We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of certain Non-GAAP Financial Measures.
Despite the importance of these measures in analyzing our underlying business, designing incentive compensation and for our goal setting, the Non-GAAP Financial Measures have no standardized meaning defined by GAAP. Therefore, certain of our Non-GAAP Financial Measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP. Some of these limitations are:
•they do not reflect our current or future cash requirements for capital expenditures or contractual commitments;
•they do not reflect changes in, or cash requirements for, our working capital needs;
•they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
•they do not reflect rent expenses, which are necessary to operate our leased operations, in the case of Adjusted EBITDAR;
•they do not reflect any income tax payments we may be required to make;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and do not reflect any cash requirements for such replacements; and
•other companies in our industry may calculate these measures differently than we do, which may limit their usefulness as comparative measures.
We compensate for these limitations by using them only to supplement net income on a basis prepared in accordance with GAAP in order to provide a more complete understanding of the factors and trends affecting our business. Management strongly encourages investors to review our consolidated financial statements in their entirety and to not rely on any single financial measure. Because these Non-GAAP Financial Measures are not standardized, it may not be possible to compare these financial measures with other companies’ Non-GAAP financial measures having the same or similar names. These Non-GAAP Financial Measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. We strongly urge you to review the reconciliation of income from operations to the Non-GAAP Financial Measures in the table below, along with our Interim Financial Statements and related notes included elsewhere in this document.
We use the following Non-GAAP financial measures that we believe are useful to investors as key valuation and operating performance measures:
PERFORMANCE MEASURES
Adjusted EBT
We adjust income before provision for income taxes (Adjusted EBT) when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Adjusted EBT, when combined with income before provision for income taxes and GAAP net income attributable to The Ensign Group, Inc., is beneficial to an investor’s complete understanding of our operating performance. We use this performance measure as an indicator of business performance, as well as for operational planning, decision-making purposes and to determine compensation in our executive compensation plan.
Adjusted EBT is income before provision for income taxes adjusted for non-core business items, which for the reported periods includes, to the extent applicable:
•stock-based compensation expense;
•acquisition related costs;
•costs incurred related to system implementations;
•litigation;
•gain on business interruption recoveries and loss on long-lived assets;
•gain on other investments; and
•amortization of patient base intangible assets.
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EBITDA
We believe EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base (depreciation and amortization expense) from our operating results.
We calculate EBITDA as net income, adjusted for net losses attributable to noncontrolling interest, before (a) interest income, (b) provision for income taxes, (c) depreciation and amortization, and (d) interest expense.
Adjusted EBITDA
We adjust EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, in the case of Adjusted EBITDA. We believe that the presentation of Adjusted EBITDA, when combined with EBITDA and GAAP net income attributable to The Ensign Group, Inc., is beneficial to an investor’s complete understanding of our operating performance.
Adjusted EBITDA is EBITDA adjusted for the same non-core business items as listed in Adjusted EBT, except for amortization of patient base intangible assets.
Funds from Operations (FFO)
We consider FFO to be a useful supplemental measure of the operating performance of Standard Bearer. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values have historically risen or fallen with market conditions, many real estate investors and analysts have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient. In response, the National Association of Real Estate Investment Trusts (NAREIT) created FFO as a supplemental measure of operating performance for REITs, which excludes historical cost depreciation from net income. We define (in accordance with the definition used by NAREIT) FFO to consist of Standard Bearer segment income, excluding depreciation and amortization related to real estate, gains or losses from the sale of real estate, insurance recoveries related to real estate and impairment of long-lived assets.
VALUATION MEASURE
Adjusted EBITDAR
We use Adjusted EBITDAR as one measure in determining the value of prospective acquisitions. It is also a commonly used measure by our management, research analysts and investors, to compare the enterprise value of different companies in the healthcare industry, without regard to differences in capital structures and leasing arrangements. Adjusted EBITDAR is a financial valuation measure that is not specified in GAAP. This measure is not displayed as a performance measure as it excludes rent expense, which is a normal and recurring operating expense, and is therefore presented only for the current period.
The adjustments made and previously described in the computation of Adjusted EBITDA are also made when computing Adjusted EBITDAR. We calculate Adjusted EBITDAR by excluding rent-cost of services from Adjusted EBITDA.
We believe the use of Adjusted EBITDAR allows the investor to compare operational results of companies who have operating and capital leases. A significant portion of capital lease expenditures are recorded in interest, whereas operating lease expenditures are recorded in rent expense.
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The table below reconciles income before provision for income taxes to Adjusted EBT for the periods presented:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Consolidated statements of income data: | (In thousands)
Income before provision for income taxes | $ | 106,600 |  |  | $ | 98,674 |  |  | $ | 325,538 |  |  | $ | 280,336 |
Stock-based compensation expense | 12,989 |  |  | 9,183 |  |  | 35,375 |  |  | 26,406 |
Litigation(1) | 12,000 |  |  | (555) |  |  | 12,000 |  |  | (1,425) |
(Gain)/loss on business interruption recoveries and long-lived assets, net | (1,660) |  |  | 486 |  |  | (2,660) |  |  | 2,335 |
Gain on other investments(2) | (2,437) |  |  | — |  |  | (2,437) |  |  | — |
Acquisition related costs(3) | 528 |  |  | 239 |  |  | 1,663 |  |  | 518 |
Costs incurred related to system implementations | 701 |  |  | 89 |  |  | 1,472 |  |  | 2,522 |
Depreciation and amortization - patient base(4) | — |  |  | 236 |  |  | 1,020 |  |  | 449 |
ADJUSTED EBT | $ | 128,721 |  |  | $ | 108,352 |  |  | $ | 371,971 |  |  | $ | 311,141 |

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

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| 2025 |  | 2024 |  | 2025 |  | 2024 |  |
Consolidated statements of income data: | (In thousands) |  |
Net income | $ | 83,911 |  |  | $ | 78,567 |  |  | $ | 248,730 |  |  | $ | 218,708 |  |  |
Less: Net income attributable to noncontrolling interests | 67 |  |  | 123 |  |  | 213 |  |  | 422 |  |  |
Interest income | 6,168 |  |  | 7,607 |  |  | 18,291 |  |  | 21,151 |  |  |
Add: Provision for income taxes | 22,689 |  |  | 20,107 |  |  | 76,808 |  |  | 61,628 |  |  |
Depreciation and amortization | 26,633 |  |  | 21,474 |  |  | 76,606 |  |  | 61,619 |  |  |
Interest expense | 1,971 |  |  | 2,024 |  |  | 6,033 |  |  | 6,028 |  |  |
EBITDA | $ | 128,969 |  |  | $ | 114,442 |  |  | $ | 389,673 |  |  | $ | 326,410 |  |  |
Adjustments to EBITDA: |  |  |  |  |  |  |  |  |
Stock-based compensation expense | 12,989 |  |  | 9,183 |  |  | 35,375 |  |  | 26,406 |  |  |
Litigation(1) | 12,000 |  |  | (555) |  |  | 12,000 |  |  | (1,425) |  |  |
(Gain)/loss on business interruption recoveries and long-lived assets, net | (1,660) |  |  | 486 |  |  | (2,660) |  |  | 2,335 |  |  |
Gain on other investments(2) | (2,437) |  |  | — |  |  | (2,437) |  |  | — |  |  |
Acquisition related costs(3) | 528 |  |  | 239 |  |  | 1,663 |  |  | 518 |  |  |
Costs incurred related to system implementations | 701 |  |  | 89 |  |  | 1,472 |  |  | 2,522 |  |  |
ADJUSTED EBITDA | $ | 151,090 |  |  | $ | 123,884 |  |  | $ | 435,086 |  |  | $ | 356,766 |  |  |
Rent—cost of services | 61,528 |  |  | 54,792 |  |  | 175,799 |  |  | 159,940 |  |  |
ADJUSTED EBITDAR | $ | 212,618 |  |  |  |  | $ | 610,885 |  |  |  |  |

(1) Represents specific proceedings and adjustments arising outside of the ordinary course of business.
(2) Represents gains on the sale of investments that are not part of our core business operations. These investments have no observable market prices and are held at historical cost basis until sold or impaired.
(3) Represents costs incurred to acquire operations that are not capitalizable.
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Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 2024
The following tables set forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

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

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

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

| Three Months Ended September 30,
| 2025 |  | 2024 |  | Change |  | % Change
TOTAL FACILITY RESULTS: | (Dollars in thousands)
Skilled services revenue | $ | 1,239,096 |  |  | $ | 1,033,113 |  |  | $ | 205,983 |  |  | 19.9 | %
Number of facilities at period end | 314 |  |  | 282 |  |  | 32 |  |  | 11.3 | %
Number of campuses at period end(1) | 31 |  |  | 29 |  |  | 2 |  |  | 6.9 | %
Actual patient days | 2,772,062 |  |  | 2,407,709 |  |  | 364,353 |  |  | 15.1 | %
Occupancy percentage — Operational beds | 82.3 | % |  | 80.9 | % |  | 1.4 | % |  | 1.7 | %
Skilled mix by nursing days | 30.3 | % |  | 29.7 | % |  | 0.6 | % |  | 2.0 | %
Skilled mix by nursing revenue | 48.9 | % |  | 48.5 | % |  | 0.4 | % |  | 0.8 | %

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| Three Months Ended September 30,
| 2025 |  | 2024 |  | Change |  | % Change
SAME FACILITY RESULTS:(2) | (Dollars in thousands)
Skilled services revenue | $ | 859,561 |  |  | $ | 806,699 |  |  | $ | 52,862 |  |  | 6.6 | %
Number of facilities at period end | 210 |  |  | 210 |  |  | — |  |  | — | %
Number of campuses at period end(1) | 25 |  |  | 25 |  |  | — |  |  | — | %
Actual patient days | 1,915,145 |  |  | 1,864,637 |  |  | 50,508 |  |  | 2.7 | %
Occupancy percentage — Operational beds | 83.0 | % |  | 81.3 | % |  | 1.7 | % |  | 2.1 | %
Skilled mix by nursing days | 31.7 | % |  | 31.0 | % |  | 0.7 | % |  | 2.3 | %
Skilled mix by nursing revenue | 50.5 | % |  | 49.5 | % |  | 1.0 | % |  | 2.0 | %

| Three Months Ended September 30,
| 2025 |  | 2024 |  | Change |  | % Change
TRANSITIONING FACILITY RESULTS:(3) | (Dollars in thousands)
Skilled services revenue | $ | 192,299 |  |  | $ | 174,328 |  |  | $ | 17,971 |  |  | 10.3 | %
Number of facilities at period end | 48 |  |  | 48 |  |  | — |  |  | — | %
Number of campuses at period end(1) | 2 |  |  | 2 |  |  | — |  |  | — | %
Actual patient days | 430,441 |  |  | 415,753 |  |  | 14,688 |  |  | 3.5 | %
Occupancy percentage — Operational beds | 84.4 | % |  | 81.5 | % |  | 2.9 | % |  | 3.6 | %
Skilled mix by nursing days | 29.4 | % |  | 27.5 | % |  | 1.9 | % |  | 6.9 | %
Skilled mix by nursing revenue | 50.9 | % |  | 48.9 | % |  | 2.0 | % |  | 4.1 | %

| Three Months Ended September 30,
| 2025 |  | 2024 |  | Change |  | % Change
RECENTLY ACQUIRED FACILITY RESULTS:(4) | (Dollars in thousands)
Skilled services revenue | $ | 187,236 |  |  | $ | 52,086 |  |  | $ | 135,150 |  |  | NM
Number of facilities at period end | 56 |  |  | 24 |  |  | 32 |  |  | NM
Number of campuses at period end(1) | 4 |  |  | 2 |  |  | 2 |  |  | NM
Actual patient days | 426,476 |  |  | 127,319 |  |  | 299,157 |  |  | NM
Occupancy percentage — Operational beds | 77.5 | % |  | 73.9 | % |  | NM |  | NM
Skilled mix by nursing days | 24.4 | % |  | 18.5 | % |  | NM |  | NM
Skilled mix by nursing revenue | 39.3 | % |  | 29.6 | % |  | NM |  | NM

(1)Campus represents a facility that offers both skilled nursing and senior living services. Revenue and expenses related to skilled nursing and senior living services have been allocated and recorded in the respective operating segment.
(2)Same Facility results represent all facilities purchased prior to January 1, 2022.
(3)Transitioning Facility results represent all facilities purchased from January 1, 2022 to December 31, 2023.
(4)Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2024.
Skilled services revenue increased by $206.0 million, or 19.9%, compared to the three months ended September 30, 2024. The increases in skilled services revenue were across all payer types, including increases in Medicaid revenue of $95.0 million, or 19.6%, and Medicare revenue of $39.7 million, or 15.1%.
The increase in skilled services revenue was primarily driven by strong occupancy and skilled mix performance across our skilled services operations. Our consolidated occupancy increased by 1.7% to 82.3%, during the three months ended September 30, 2025 compared to the same period in 2024 across all payors, with an increase in skilled days from our operations within Same Facilities and Transitioning Facilities.
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Revenue in our Same Facilities increased by $52.9 million, or 6.6%, compared to the same period in 2024, due to increased occupancy from strong skilled days and revenue per patient day. Our continuous efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 6.6%, resulting from an increase in managed care days and revenue per patient day. We continued to expand our Medicare patient base while also increasing our share of the growing Medicare Advantage market. Our Medicare revenue increased by 3.8% due to an increase in Medicare days and revenue per patient day. In addition, our other skilled revenue has continued to support the needs of the local communities through the expansion of the Veterans Affairs programs.
Revenue in our Transitioning Facilities increased by $18.0 million, or 10.3%, compared to the same period in 2024, due to improved occupancy growth, increases in skilled mix days and revenue per patient day. The increases in revenue were derived from increased Managed Care revenue of 22.0%, Medicaid revenue of 7.6% and private and other revenue of 33.2%. The increases are a result of an increase in patient days across all payer types, which reflect our operational fundamentals as we continue to transition and integrate these facilities.
Revenue in our Recently Acquired Facilities increased by approximately $135.2 million compared to the same period in 2024. The 34 operational expansions between October 1, 2024 and September 30, 2025 across 12 states contributed $113.0 million of the total increase.
Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate lower overall occupancy during years of growth. In the future, if we acquire additional turnaround or start-up operations, we expect to see lower occupancy rates and skilled mix and these metrics are expected to vary from period to period based upon the type of facilities and operations that we acquire.
The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate(1):

| Three Months Ended September 30,
| Same Facility |  | Transitioning |  | Acquisitions |  | Total
| 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024
SKILLED NURSING AVERAGE DAILY REVENUE RATES:
Medicare | $ | 792.47 |  |  | $ | 750.49 |  |  | $ | 871.52 |  |  | $ | 820.18 |  |  | $ | 748.57 |  |  | $ | 632.03 |  |  | $ | 800.89 |  |  | $ | 761.27 |
Managed care | 579.20 |  |  | 553.97 |  |  | 620.45 |  |  | 573.69 |  |  | 587.23 |  |  | 465.08 |  |  | 585.56 |  |  | 553.85 |
Other skilled | 652.65 |  |  | 631.74 |  |  | 603.05 |  |  | 577.97 |  |  | 688.31 |  |  | 639.20 |  |  | 650.94 |  |  | 625.47 |
Total skilled revenue | 667.71 |  |  | 636.96 |  |  | 733.15 |  |  | 697.05 |  |  | 676.61 |  |  | 561.74 |  |  | 678.71 |  |  | 644.15 |
Medicaid | 304.16 |  |  | 294.55 |  |  | 292.47 |  |  | 274.77 |  |  | 335.07 |  |  | 304.13 |  |  | 307.19 |  |  | 291.49 |
Private and other payors | 300.91 |  |  | 278.56 |  |  | 313.92 |  |  | 282.53 |  |  | 350.48 |  |  | 300.05 |  |  | 312.58 |  |  | 280.84 |
Total skilled nursing revenue | $ | 419.19 |  |  | $ | 398.99 |  |  | $ | 424.07 |  |  | $ | 391.60 |  |  | $ | 420.56 |  |  | $ | 351.14 |  |  | $ | 420.16 |  |  | $ | 395.24 |

(1) The rates are based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606.
Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.6% and 6.3%, respectively, compared to the three months ended September 30, 2024. The increase is attributable to the 4.2% net market basket increase that became effective in October 2024 as well as a shift toward higher acuity patients. As hospitals continue to discharge individuals with more complex medical conditions to skilled nursing facilities, we are experiencing a greater proportion of higher acuity patients, which necessitates more advanced and specialized care.
Our average Medicaid rates increased 5.4% due to state reimbursement increases, our participation in Medicaid supplemental payment and quality improvement programs in various states.
Payor Sources as a Percentage of Skilled Nursing Services. We use our skilled mix as a measure of the quality of reimbursements we receive at our affiliated skilled nursing facilities over various periods.
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The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:

| Three Months Ended September 30,
| Same Facility |  | Transitioning |  | Acquisitions |  | Total
| 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024
PERCENTAGE OF SKILLED NURSING REVENUE
Medicare | 20.8 | % |  | 20.4 | % |  | 27.8 | % |  | 28.7 | % |  | 18.8 | % |  | 13.2 | % |  | 21.6 | % |  | 21.5 | %
Managed care | 20.0 |  |  | 20.1 |  |  | 16.5 |  |  | 14.9 |  |  | 12.7 |  |  | 10.5 |  |  | 18.3 |  |  | 18.8 |
Other skilled | 9.7 |  |  | 9.0 |  |  | 6.6 |  |  | 5.3 |  |  | 7.8 |  |  | 5.9 |  |  | 9.0 |  |  | 8.2 |
Skilled Mix | 50.5 | % |  | 49.5 | % |  | 50.9 | % |  | 48.9 | % |  | 39.3 | % |  | 29.6 | % |  | 48.9 | % |  | 48.5 | %
Private and other payors | 7.3 |  |  | 7.4 |  |  | 6.4 |  |  | 7.1 |  |  | 11.4 |  |  | 13.7 |  |  | 7.7 |  |  | 7.6 |
Medicaid | 42.2 |  |  | 43.1 |  |  | 42.7 |  |  | 44.0 |  |  | 49.3 |  |  | 56.7 |  |  | 43.4 |  |  | 43.9 |
TOTAL SKILLED NURSING | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %

| Three Months Ended September 30,
| Same Facility |  | Transitioning |  | Acquisitions |  | Total
| 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024
PERCENTAGE OF SKILLED NURSING DAYS
Medicare | 11.0 | % |  | 10.9 | % |  | 13.5 | % |  | 13.7 | % |  | 10.6 | % |  | 7.3 | % |  | 11.3 | % |  | 11.2 | %
Managed care | 14.5 |  |  | 14.5 |  |  | 11.3 |  |  | 10.2 |  |  | 9.1 |  |  | 7.9 |  |  | 13.2 |  |  | 13.4 |
Other skilled | 6.2 |  |  | 5.6 |  |  | 4.6 |  |  | 3.6 |  |  | 4.7 |  |  | 3.3 |  |  | 5.8 |  |  | 5.1 |
Skilled Mix | 31.7 | % |  | 31.0 | % |  | 29.4 | % |  | 27.5 | % |  | 24.4 | % |  | 18.5 | % |  | 30.3 | % |  | 29.7 | %
Private and other payors | 10.1 |  |  | 10.7 |  |  | 8.7 |  |  | 9.8 |  |  | 13.7 |  |  | 16.1 |  |  | 10.3 |  |  | 10.8 |
Medicaid | 58.2 |  |  | 58.3 |  |  | 61.9 |  |  | 62.7 |  |  | 61.9 |  |  | 65.4 |  |  | 59.4 |  |  | 59.5 |
TOTAL SKILLED NURSING | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %

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

|  | Three Months Ended September 30, |  | Change
|  | 2025 |  | 2024 |  | $ |  | %
Cost of service |  | $ | 989,959 |  |  |  |  | $ | 824,152 |  |  |  |  | $ | 165,807 |  |  | 20.1 | %
Revenue percentage |  | 79.9 | % |  |  |  | 79.8 | % |  |  |  |  |  | 0.1 | %

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

|  | Three Months Ended September 30, |  | Change
|  | 2025 |  | 2024 |  | $ |  | %
|  | (Dollars in thousands) |  |  |  |
Rental revenue generated from third-party tenants |  | $ | 4,976 |  |  | $ | 4,195 |  |  | $ | 781 |  |  | 18.6 | %
Rental revenue generated from Ensign's independent subsidiaries |  | 27,634 |  |  | 20,234 |  |  | 7,400 |  |  | 36.6 |
TOTAL RENTAL REVENUE |  | $ | 32,610 |  |  | $ | 24,429 |  |  | $ | 8,181 |  |  | 33.5 | %
Segment income |  | 9,622 |  |  | 7,274 |  |  | 2,348 |  |  | 32.3 |
Depreciation and amortization |  | 9,709 |  |  | 7,484 |  |  | 2,225 |  |  | 29.7 |
FFO |  | $ | 19,331 |  |  | $ | 14,758 |  |  | $ | 4,573 |  |  | 31.0 | %

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $8.2 million, or 33.5%, to $32.6 million, compared to the three months ended September 30, 2024. The increase in revenue is primarily attributable to 26 real estate purchases, as well as annual rent increases since the three months ended September 30, 2024.
FFO — Our FFO increased by $4.6 million, or 31.0%, to $19.3 million, compared to the three months ended September 30, 2024. The increase in rental revenue of $8.2 million was partially offset by increases in interest expense of $3.6 million associated with the agreements between Standard Bearer and us as we continue to grow our real estate portfolio.
All Other Revenue
Our other revenue increased by $9.4 million, or 18.4%, to $60.6 million, compared to the three months ended September 30, 2024. Other revenue includes senior living revenue of $29.8 million, revenue from other ancillary services of $27.6 million and rental income of $3.2 million. The increase in other revenue is primarily attributable to the increase in occupancy in our senior living operations and growth in our other ancillary services.
Consolidated Financial Expenses
Rent-cost of services — Our rent-cost of services as a percentage of revenue decreased by 0.4% to 4.7%, as the expansions in our footprint have resulted from more real estate purchases than leased properties.
General and administrative expense — General and administrative expense increased $11.2 million or 19.9%, to $67.4 million. This increase was primarily driven by additional headcount due to acquisition activities and increases in wages and benefits due to enhanced performance and growth. General and administrative expense as a percentage of revenue remained consistent at 5.2%.
Depreciation and amortization — Depreciation and amortization expense increased $5.2 million, or 24.0%, to $26.6 million. This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations, which have a greater mix of real estate purchases than leases, and capital expenditure investments. Depreciation and amortization increased 0.2%, to 2.1%, as a percentage of revenue.
Other income, net — Other income, net as a percentage of revenue decreased by 0.1%. Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses. Other income, net increased by $1.0 million due to a $2.4 million realized gain on other investments not core to our business operations offset by a decrease in interest income of $1.4 million as we utilized our cash on hand to fund more real estate purchases during the period.
Provision for income taxes — Our effective tax rate was 21.3% for the three months ended September 30, 2025, compared to 20.4% for the same period in 2024. The effective tax rate for both periods was driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses including non-deductible compensation. See Note 13, Income Taxes, in the Notes to the Interim Financial Statements for further discussion.
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Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024
The following tables set forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

|  | Nine Months Ended September 30, 2025
|  | Skilled Services |  | Standard Bearer |  | All Other |  | Eliminations |  | Consolidated
Total revenue |  | $ | 3,536,226 |  |  | $ | 92,479 |  |  | $ | 170,336 |  |  | $ | (101,826) |  |  | $ | 3,697,215 |
Total expenses, including other income, net |  | 3,089,165 |  |  | 65,148 |  |  | 318,117 |  |  | (101,826) |  |  | 3,370,604 |
Segment income (loss) |  | 447,061 |  |  | 27,331 |  |  | (147,781) |  |  | — |  |  | 326,611 |
Loss on long-lived assets |  |  |  |  |  |  |  |  |  | (1,073) |
Income before provision for income taxes |  |  |  |  |  |  |  |  |  | $ | 325,538 |

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

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

| Nine Months Ended September 30,
| 2025 |  | 2024 |  | Change |  | % Change
TOTAL FACILITY RESULTS: | (Dollars in thousands)
Skilled services revenue | $ | 3,536,226 |  |  | 2,994,000 |  |  | $ | 542,226 |  |  | 18.1 | %
Number of facilities at period end | 314 |  |  | 282 |  |  | 32 |  |  | 11.3 | %
Number of campuses at period end(1) | 31 |  |  | 29 |  |  | 2 |  |  | 6.9 | %
Actual patient days | 7,925,688 |  |  | 6,962,308 |  |  | 963,380 |  |  | 13.8 | %
Occupancy percentage — Operational beds | 81.8 | % |  | 80.4 | % |  | 1.4 | % |  | 1.7 | %
Skilled mix by nursing days | 30.8 | % |  | 30.2 | % |  | 0.6 | % |  | 2.0 | %
Skilled mix by nursing revenue | 49.4 | % |  | 48.8 | % |  | 0.6 | % |  | 1.2 | %

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| Nine Months Ended September 30,
| 2025 |  | 2024 |  | Change |  | % Change
SAME FACILITY RESULTS:(2)(5) | (Dollars in thousands)
Skilled services revenue | $ | 2,539,758 |  |  | $ | 2,391,099 |  |  | $ | 148,659 |  |  | 6.2 | %
Number of facilities at period end | 210 |  |  | 210 |  |  | — |  |  | — | %
Number of campuses at period end(1) | 25 |  |  | 25 |  |  | — |  |  | — | %
Actual patient days | 5,641,877 |  |  | 5,516,552 |  |  | 125,325 |  |  | 2.3 | %
Occupancy percentage — Operational beds | 82.6 | % |  | 80.7 | % |  | 1.9 | % |  | 2.4 | %
Skilled mix by nursing days | 32.4 | % |  | 31.2 | % |  | 1.2 | % |  | 3.8 | %
Skilled mix by nursing revenue | 51.3 | % |  | 49.5 | % |  | 1.8 | % |  | 3.6 | %

| Nine Months Ended September 30,
| 2025 |  | 2024 |  | Change |  | % Change
TRANSITIONING FACILITY RESULTS:(3) | (Dollars in thousands)
Skilled services revenue | $ | 565,354 |  |  | $ | 512,950 |  |  | $ | 52,404 |  |  | 10.2 | %
Number of facilities at period end | 48 |  |  | 48 |  |  | — |  |  | — | %
Number of campuses at period end(1) | 2 |  |  | 2 |  |  | — |  |  | — | %
Actual patient days | 1,270,693 |  |  | 1,221,348 |  |  | 49,345 |  |  | 4.0 | %
Occupancy percentage — Operational beds | 84.0 | % |  | 80.4 | % |  | 3.6 | % |  | 4.5 | %
Skilled mix by nursing days | 29.7 | % |  | 27.8 | % |  | 1.9 | % |  | 6.8 | %
Skilled mix by nursing revenue | 50.9 | % |  | 48.9 | % |  | 2.0 | % |  | 4.1 | %

| Nine Months Ended September 30,
| 2025 |  | 2024 |  | Change |  | % Change
RECENTLY ACQUIRED FACILITY RESULTS:(4) | (Dollars in thousands)
Skilled services revenue | $ | 431,114 |  |  | $ | 89,377 |  |  | $ | 341,737 |  |  | NM
Number of facilities at period end | 56 |  |  | 24 |  |  | 32 |  |  | NM
Number of campuses at period end(1) | 4 |  |  | 2 |  |  | 2 |  |  | NM
Actual patient days | 1,013,118 |  |  | 222,326 |  |  | 790,792 |  |  | NM
Occupancy percentage — Operational beds | 75.7 | % |  | 73.3 | % |  | NM |  | NM
Skilled mix by nursing days | 23.0 | % |  | 18.2 | % |  | NM |  | NM
Skilled mix by nursing revenue | 36.5 | % |  | 29.7 | % |  | NM |  | NM

(1)Campus represents a facility that offers both skilled nursing and senior living services. Revenue and expenses related to skilled nursing and senior living services have been allocated and recorded in the respective operating segment.
(2)Same Facility results represent all facilities purchased prior to January 1, 2022.
(3)Transitioning Facility results represent all facilities purchased from January 1, 2022 to December 31, 2023.
(4)Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2024.
(5)Skilled services revenue and key performance metrics for a closed facility was not material and has been excluded from Same Facilities results during the nine months ended September 30, 2024. The facility was closed in 2024 as the program was transitioned from an intermediate care facility to a group home setting.
Skilled services revenue increased $542.2 million, or 18.1%, compared to the nine months ended September 30, 2024. The increases in skilled services revenue were across all payer types, including increases in Medicaid revenue of $243.8 million, or 17.4%, and managed care revenue of $113.0 million, or 19.4%.
The increase in skilled services revenue was primarily driven by strong occupancy and skilled mix performance across our skilled services operations. Our consolidated occupancy increased by 1.7% to 81.8% during the nine months ended September 30, 2025 compared to the same period in 2024 across all payors, with an increase in skilled days from our operations within Same Facilities and Transitioning Facilities.
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Revenue in our Same Facilities increased $148.7 million, or 6.2%, compared to the nine months ended September 30, 2024, due to increased occupancy, strong skilled days and revenue per patient day. Our continuous efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 9.8%, resulting from an increase in managed care days and revenue per patient day. We continued to grow our Medicare patient population in addition to capturing market share in the increases in Medicare Advantage enrollments of the overall Medicare eligible population. Our Medicare revenue increased by 3.6% due to an increase in Medicare days and revenue per day. In addition, our other skilled revenue has continued to increase as we support the needs of the local communities through the expansion of the Veterans Affairs programs.
Revenue in our Transitioning Facilities increased $52.4 million, or 10.2%, compared to the nine months ended September 30, 2024, due to improved occupancy growth, increases in skilled mix days and revenue per patient day. The increases in revenue were derived from managed care revenue of 21.9%, Medicare revenue of 3.6%, Medicaid revenue of 8.3% and private revenue of 27.8%. The increases are a result of an increase in patient days across all payer types, which reflect our operational fundamentals as we continue to transition and integrate these facilities.
Revenue in our Recently Acquired Facilities increased $341.7 million, compared to the nine months ended September 30, 2024. The 34 operational expansions between October 1, 2024 and September 30, 2025 across 12 states contributed $213.0 million of the total increase.
Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate lower overall occupancy during years of growth. In the future, if we acquire additional turnaround or start-up operations, we expect to see lower occupancy rates and skilled mix and these metrics are expected to vary from period to period based upon the type of the facilities and operations that we acquire.
The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate (1):

| Nine Months Ended September 30,
| Same Facility |  | Transitioning |  | Acquisitions |  | Total
| 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024
SKILLED NURSING AVERAGE DAILY REVENUE RATES
Medicare | $ | 786.85 |  |  | $ | 747.58 |  |  | $ | 856.42 |  |  | $ | 817.25 |  |  | $ | 703.85 |  |  | $ | 626.48 |  |  | $ | 791.47 |  |  | $ | 759.90 |
Managed care | 575.83 |  |  | 550.62 |  |  | 604.73 |  |  | 562.97 |  |  | 542.99 |  |  | 464.39 |  |  | 576.91 |  |  | 550.73 |
Other skilled | 652.78 |  |  | 622.67 |  |  | 601.73 |  |  | 539.78 |  |  | 699.83 |  |  | 676.49 |  |  | 650.77 |  |  | 613.37 |
Total skilled revenue | 664.57 |  |  | 634.06 |  |  | 722.63 |  |  | 687.76 |  |  | 638.95 |  |  | 565.98 |  |  | 671.14 |  |  | 641.47 |
Medicaid | 304.21 |  |  | 295.85 |  |  | 291.76 |  |  | 276.00 |  |  | 329.49 |  |  | 300.15 |  |  | 305.55 |  |  | 292.35 |
Private and other payors | 295.80 |  |  | 279.88 |  |  | 313.36 |  |  | 287.13 |  |  | 344.46 |  |  | 285.54 |  |  | 306.74 |  |  | 281.39 |
Total skilled nursing revenue | $ | 420.23 |  |  | $ | 399.71 |  |  | $ | 421.69 |  |  | $ | 391.80 |  |  | $ | 402.80 |  |  | $ | 346.21 |  |  | $ | 418.26 |  |  | $ | 396.61 |

(1) The rates are based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606.
Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.3% and 4.8%, respectively, compared to the nine months ended September 30, 2024. The increases are attributable to the 4.2% net market basket increase that became effective in October 2024 as well as a shift toward higher acuity patients. As hospitals continue to discharge individuals with more complex medical conditions to skilled nursing facilities, we are experiencing a greater proportion of higher acuity patients, which necessitates more advanced and specialized care.
Our average Medicaid rates increased 4.5% due to state reimbursement increases, our participation in Medicaid supplemental payment and quality improvement programs in various states.
Payor Sources as a Percentage of Skilled Nursing Services — We use our skilled mix as a measure of the quality of reimbursements we receive at our independent skilled nursing facilities over various periods.
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The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:

| Nine Months Ended September 30,
| Same Facility |  | Transitioning |  | Acquisitions |  | Total
| 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024
PERCENTAGE OF SKILLED NURSING REVENUE
Medicare | 21.4 | % |  | 20.9 | % |  | 28.4 | % |  | 29.2 | % |  | 17.0 | % |  | 13.8 | % |  | 22.0 | % |  | 22.1 | %
Managed care | 20.5 |  |  | 19.9 |  |  | 16.4 |  |  | 14.7 |  |  | 12.4 |  |  | 10.3 |  |  | 18.8 |  |  | 18.7 |
Other skilled | 9.4 |  |  | 8.7 |  |  | 6.1 |  |  | 5.0 |  |  | 7.1 |  |  | 5.6 |  |  | 8.6 |  |  | 8.0 |
Skilled mix | 51.3 | % |  | 49.5 | % |  | 50.9 | % |  | 48.9 | % |  | 36.5 | % |  | 29.7 | % |  | 49.4 | % |  | 48.8 | %
Private and other payors | 6.9 |  |  | 7.3 |  |  | 6.7 |  |  | 7.6 |  |  | 12.0 |  |  | 13.1 |  |  | 7.5 |  |  | 7.5 |
Medicaid | 41.8 |  |  | 43.2 |  |  | 42.4 |  |  | 43.5 |  |  | 51.5 |  |  | 57.2 |  |  | 43.1 |  |  | 43.7 |
TOTAL SKILLED NURSING | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %

| Nine Months Ended September 30,
| Same Facility |  | Transitioning |  | Acquisitions |  | Total
| 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024
PERCENTAGE OF SKILLED NURSING DAYS
Medicare | 11.4 | % |  | 11.2 | % |  | 14.0 | % |  | 14.0 | % |  | 9.7 | % |  | 7.7 | % |  | 11.6 | % |  | 11.6 | %
Managed care | 14.9 |  |  | 14.4 |  |  | 11.4 |  |  | 10.2 |  |  | 9.2 |  |  | 7.7 |  |  | 13.6 |  |  | 13.5 |
Other skilled | 6.1 |  |  | 5.6 |  |  | 4.3 |  |  | 3.6 |  |  | 4.1 |  |  | 2.8 |  |  | 5.6 |  |  | 5.1 |
Skilled mix | 32.4 | % |  | 31.2 | % |  | 29.7 | % |  | 27.8 | % |  | 23.0 | % |  | 18.2 | % |  | 30.8 | % |  | 30.2 | %
Private and other payors | 9.9 |  |  | 10.4 |  |  | 9.0 |  |  | 10.4 |  |  | 14.1 |  |  | 15.8 |  |  | 10.2 |  |  | 10.6 |
Medicaid | 57.7 |  |  | 58.4 |  |  | 61.3 |  |  | 61.8 |  |  | 62.9 |  |  | 66.0 |  |  | 59.0 |  |  | 59.2 |
TOTAL SKILLED NURSING | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %

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

|  | Nine Months Ended September 30, |  | Change
|  | 2025 |  | 2024 |  | $ |  | %
Cost of service |  | $ | 2,814,637 |  |  |  |  | $ | 2,383,742 |  |  |  |  | $ | 430,895 |  |  | 18.1 | %
Revenue percentage |  | 79.6 | % |  |  |  | 79.6 | % |  |  |  |  |  | — | %

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

|  | Nine Months Ended September 30, |  | Change
|  | 2025 |  | 2024 |  | $ |  | %
|  | (Dollars in thousands) |  |  |  |  |  |
Rental revenue generated from third-party tenants |  | $ | 14,185 |  |  |  |  | $ | 12,588 |  |  |  |  | $ | 1,597 |  |  | 12.7 | %
Rental revenue generated from Ensign's independent subsidiaries |  | 78,294 |  |  |  |  | 57,396 |  |  |  |  | 20,898 |  |  | 36.4 |
TOTAL RENTAL REVENUE |  | $ | 92,479 |  |  |  |  | $ | 69,984 |  |  |  |  | $ | 22,495 |  |  | 32.1 | %
Segment income |  | 27,331 |  |  |  |  | 21,892 |  |  |  |  | 5,439 |  |  | 24.8 |
Depreciation and amortization |  | 27,450 |  |  |  |  | 21,479 |  |  |  |  | 5,971 |  |  | 27.8 |
FFO |  | $ | 54,781 |  |  |  |  | $ | 43,371 |  |  |  |  | $ | 11,410 |  |  | 26.3 | %

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $22.5 million, or 32.1%, to $92.5 million, compared to the nine months ended September 30, 2024. The increase in revenue is primarily attributable to 26 real estate purchases as well as annual rent increases since the nine months ended September 30, 2024.
FFO — Our FFO increased by $11.4 million, or 26.3%, to $54.8 million, compared to the nine months ended September 30, 2024. The increase in rental revenue of $22.5 million is offset by increases in interest expense of $10.3 million associated with the debt arrangements between Standard Bearer and us as Standard Bearer continues to grow its real estate portfolio.
All Other Revenue
Our other revenue increased by $29.3 million, or 20.8%, to $170.3 million, compared to the nine months ended September 30, 2024. Other revenue for the nine months ended September 30, 2025 includes senior living revenue of $81.5 million, revenue from other ancillary services of $79.4 million and rental income of $9.4 million. The increase in other revenue is primarily attributable to our senior living and other ancillary services.
Consolidated Financial Expenses
Rent-cost of services — Our rent-cost of services as a percentage of revenue decreased by 0.3% to 4.8%, as the expansions in our footprint have resulted from more real estate purchases than leased properties.
General and administrative expense — General and administrative expense increased by $29.5 million or 17.4%, to $199.0 million. This increase was primarily driven by additional headcount due to acquisition activities and increases in wages and benefits due to enhanced performance and growth. General and administrative expense as a percentage of revenue remained consistent at 5.4%.
Depreciation and amortization — Depreciation and amortization expense increased by $15.0 million, or 24.3%, to $76.6 million. This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations, which have a greater mix of real estate purchases than leases, and capital expenditure investments. Depreciation and amortization increased 0.1%, to 2.0%, as a percentage of revenue.
Other income, net — Other income, net as a percentage of revenue decreased by 0.1%. Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses. Other income, net increased by $1.2 million due to a $2.4 million realized gain on other investments not core to our business operations and a $1.2 million gain on our deferred compensation plan offset by a decrease in interest income of $2.9 million as we utilized our cash on hand to fund more real estate purchases during the period. Changes in our deferred compensation plan are a result of gains or losses depending on market performance.
Provision for income taxes — Our effective tax rate was 23.6% for the nine months ended September 30, 2025, compared to 22.0% for the same period in 2024. The effective tax rate for both periods was driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses, including non-deductible compensation. See Note 13, Income Taxes, in the Interim Financial Statements for further discussion.
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Liquidity and Capital Resources
Our principal sources of liquidity have historically been derived from our cash flows from operations and long-term debt issuance secured by our real property and borrowings under our revolving Credit Facility (defined below). Our liquidity as of September 30, 2025 is impacted by cash generated from strong operational performance offset by investments made for our operational expansions as well as capital expenditures to improve the quality of care at our existing operations.
Historically, we have primarily financed the majority of our acquisitions through mortgages on our properties, our Credit Facility and cash generated from operations. Cash paid to fund acquisitions was $240.3 million for the nine months ended September 30, 2025 compared to $87.2 million for the nine months ended September 30, 2024. Total capital expenditures for property and equipment were $143.7 million and $110.1 million for the nine months ended September 30, 2025 and 2024, respectively. We currently have approximately $180.0 million budgeted for renovation projects in 2025. We believe our current cash balances, our cash flow from operations and the amounts available for borrowing under our Credit Facility will be sufficient to cover our operating needs for at least the next 12 months.
We may, in the future, seek to raise additional capital to fund growth, capital renovations, operations and other business activities, but such additional capital may not be available on acceptable terms, on a timely basis, or at all.
Our cash and cash equivalents of approximately $443.7 million as of September 30, 2025 consisted of bank deposits and money market funds. In addition, as of September 30, 2025, we held investments of approximately $231.8 million. We believe our investments that were in an unrealized loss position as of September 30, 2025 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so.
Our primary source of cash is from our ongoing operations. Our positive cash flows have supported our business and have allowed us to pay regular dividends to our stockholders. We currently anticipate that existing cash and total investments as of September 30, 2025, along with projected operating cash flows and available financing, will support our normal business operations for the foreseeable future.
Share Repurchases
On May 15, 2025, the Board of Directors approved a stock repurchase program pursuant to which we are authorized to repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from June 16, 2025. During the second quarter of 2025, we did not repurchase any shares pursuant to this stock repurchase program.
On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which we were authorized to repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from March 26, 2025. During the first quarter of 2025, we repurchased 84 shares of our common stock for $10.8 million. During the second quarter of 2025, we repurchased 73 shares of our common stock for $9.2 million. This repurchase program expired upon the repurchase of the fully authorized amount under the plan and is no longer in effect.
Under our repurchase program, we are authorized to repurchase our issued and outstanding common shares from time to time in open-market and privately negotiated transactions, tender offers, pursuant to contractual provisions, and block trades, or otherwise in accordance with federal securities laws. The stock repurchase programs do not obligate us to acquire any specific number of shares. Any such repurchases will depend on our business strategy, prevailing market conditions, our liquidity requirements, contractual restrictions or covenants, compliance with securities laws, and other factors. The amounts involved in any such transaction may be material.
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The following table presents selected data from our condensed consolidated statement of cash flows for the periods presented:

| Nine Months Ended September 30,
| 2025 |  | 2024 |  |
NET CASH PROVIDED BY/(USED IN): | (In thousands)
Operating activities | $ | 380,950 |  |  | $ | 246,730 |  |  |
Investing activities | (389,237) |  |  | (223,465) |  |  |
Financing activities | (12,643) |  |  | (825) |  |  |
Net (decrease)/increase in cash and cash equivalents | $ | (20,930) |  |  | $ | 22,440 |  |  |
Cash and cash equivalents beginning of period | 464,598 |  |  | 509,626 |  |  |
Cash and cash equivalents at end of period | $ | 443,668 |  |  | $ | 532,066 |  |  |

Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in operating assets and liabilities.
The $134.2 million increase in cash provided by operating activities for the nine months ended September 30, 2025 compared to the same period in 2024 w as due to an increase in operational performance and timing of payments and accounts receivable collections.
Investing Activities
Investing cash flows consist primarily of capital expenditures, investment activities, insurance proceeds and cash used for acquisitions.
The $165.8 million increase in cash used in investing activities for the nine months ended September 30, 2025 compared to the same period in 2024 was primarily used for acquisitions and capital expenditures.
Financing Activities
Financing cash flows consist primarily of cash provided by the issuance of common stock upon exercise of stock options, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt and payment for share repurchases.
The $11.8 million increase in cash used by financing activities for the nine months ended September 30, 2025 compared to the same period in 2024, was primarily due to $20.0 million of share repurchases in 2025 as part of our stock repurchase program offset by an increase in cash provided by the issuance of stock options.
Credit Facility with a Lending Consortium Arranged by Truist
We maintain a revolving credit facility with Truist Securities (Truist) (the Credit Facility) with availability of up to $600.0 million in aggregate principal. The maturity date of the Credit Facility is April 8, 2027. Borrowings are supported by a lending consortium arranged by Truist. The interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.25% to 1.25% per annum or SOFR plus a margin ranging from 1.25% to 2.25% per annum, based on the Consolidated Total Net Debt to Consolidated EBITDA ratio (as defined in the Credit Facility). In addition, there is a commitment fee on the unused portion of the commitments that ranges from 0.20% to 0.40% per annum, depending on the Consolidated Total Net Debt to Consolidated EBITDA ratio.
Mortgage Loans and Promissory Note
As of September 30, 2025, 23 of our subsidiaries had mortgage loans insured with HUD for an aggregate amount of $144.3 million, which subjects these subsidiaries to HUD oversight and periodic inspections. The mortgage loans bear effective interest rates at a range of 3.1% to 4.2%, including fixed interest rates at a range of 2.4% to 3.3% per annum. In addition to the interest rate, we incur other fees for HUD placement, including but not limited to audit fees. Amounts borrowed under the mortgage loans may be prepaid, subject to prepayment fees of the principal balance on the date of prepayment. For the majority of the loans, during the first three years, the prepayment fee is 10.0%, and is reduced by 3.0% in the fourth year of the loan, and reduced by 1.0% per year for years five through ten of the loan. There is no prepayment penalty after year ten. The terms for all the mortgage loans are 25 to 35 years.
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In addition to the HUD mortgage loans, one of our subsidiaries has a promissory note that bears a fixed interest rate of 5.3% per annum and has a term of 12 years. The note, which was used for an acquisition, is secured by the real property comprising the facility and the rent, issues and profits thereof, as well as all personal property used in the operation of the facility.
Operating Leases
As of September 30, 2025, 249 of our facilities have long-term lease arrangements, of which 104 of the operations are under eight triple-net Master Leases with CareTrust. The Master Leases consist of multiple leases, each with its own pool of properties, that have varying maturities and diversity in property geography. Under each master lease, our individual subsidiaries that operate those properties are the tenants and CareTrust's individual subsidiaries that own the properties subject to the Master Leases are the landlords. The rent structure under the Master Leases includes a fixed component, subject to annual escalation equal to the lesser of the percentage change in the Consumer Price Index (but not less than zero) or 2.5%. At our option, we can extend the Master Leases for two or three five-year renewal terms beyond the initial term, on the same terms and conditions. If we elect to renew the term of a Master Lease, the renewal will be effective as to all, but not less than all, of the leased property then subject to the Master Lease.
We also lease certain facilities and our administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from five to 20 years and are subject to annual escalation equal to the percentage change in the Consumer Price Index with a stated cap percentage. In addition, we lease certain of our equipment under non-cancelable operating leases with initial terms ranging from three to five years. Most of these leases contain renewal options, certain of which involve rent increases.
Our 102 independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases from CareTrust, are operated under 18 separate Master Leases. Under these master leases, a default at a single facility could subject one or more of the other independent subsidiaries covered by the same master lease to the same default risk. Failure to comply with Medicare and Medicaid provider requirements is a default under several of our leases, master lease agreements and debt financing instruments. In addition, other potential defaults related to an individual facility may cause a default of an entire master lease portfolio and could trigger cross-default provisions in our outstanding debt arrangements and other leases. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.
Inflation
We have historically derived a substantial portion of our revenue from the Medicare program. We also derive revenue from state Medicaid and similar reimbursement programs. Payments under these programs generally provide for reimbursement levels that are adjusted for inflation annually based upon the state’s fiscal year for the Medicaid programs and in each October for the Medicare program. These adjustments may not continue in the future, and even if received, such adjustments may not reflect the actual increase in our costs for providing healthcare services.
Labor, supply expenses and capital expenditures make up a substantial portion of our cost of services. Those expenses can be subject to increase in periods of rising inflation, tariffs enforcement and when labor shortages occur in the marketplace. To date, we have generally been able to implement cost control measures or obtain increases in reimbursement sufficient to offset increases in these expenses. There can be no assurance that we will be able to anticipate fully or otherwise respond to any future inflationary pressures.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk — We are exposed to risks associated with market changes in interest rates through our borrowing arrangements and investments. In particular, our Credit Facility exposes us to variability in interest payments due to changes in SOFR interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our mortgages and promissory note require principal and interest payments through maturity pursuant to amortization schedules.
Our mortgages generally contain provisions that allow us to make repayments earlier than the stated maturity date. In some cases, we are not allowed to make early repayment prior to a cutoff date. Where prepayment is permitted, we are generally allowed to make prepayments only at a premium which is often designed to preserve a stated yield to the note holder. These prepayment rights may afford us opportunities to mitigate the risk of refinancing our debts at maturity at higher rates by refinancing prior to maturity.
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We have a Credit Facility with Truist of up to $600.0 million in aggregate principal. We have no outstanding borrowings under our Credit Facility as of September 30, 2025 and through the filing date of this report. In addition, we have outstanding indebtedness under mortgage loans insured with HUD and a promissory note payable to a third party of $145.4 million, all of which are at fixed interest rates.
Our cash and cash equivalents as of September 30, 2025 consisted of bank term deposits, money market funds and U.S. Treasury bill related investments. In addition, as of September 30, 2025, we held investments of approximately $231.8 million. We believe our investments that were in an unrealized loss position as of September 30, 2025 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so. Our market risk exposure is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. The primary objective of our investment activities is to preserve principal, while at the same time maximizing the income we receive from our investments without significantly increasing risk. We invest in marketable securities with the positive intent and ability to hold to maturity. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities portfolio.
The above only incorporates those exposures that exist as of September 30, 2025 and does not consider those exposures or positions which could arise after that date. If we diversify our investment portfolio into securities and other investment alternatives, we may face increased risk and exposures as a result of interest risk and the securities markets in general.
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II.
Item 1. LEGAL PROCEEDINGS
Indemnities — From time to time, we enter into contracts that contingently require us to indemnify parties against third-party claims. These contracts primarily include (i) certain real estate leases, under which we may be required to indemnify property owners or prior facility operators for post-transfer environmental or other liabilities and other claims arising from our use of the applicable premises, (ii) operations transfer agreements, in which we agree to indemnify past operators of facilities we acquire against certain liabilities arising from the transfer of the operation and/or the operation thereof after the transfer to our independent subsidiary, (iii) certain lending agreements, under which we may be required to indemnify the lender against various claims and liabilities, and (iv) certain agreements with our officers, directors and others, under which we may be required to indemnify such persons for liabilities based on the nature of their relationship to us. The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar amount. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, because no claims have been asserted, no liabilities have been recorded for any such potential obligation on our balance sheets for any of the periods presented.
Litigation and Regulatory Matters — Laws and regulations governing Medicare and Medicaid programs are complex and subject to review and interpretation. Compliance with such laws and regulations is evaluated regularly, the results of which can be subject to future governmental review and interpretation and can include significant regulatory action with the possibility of fines, penalties, and exclusion from certain governmental programs. Included in these laws and regulations is the Health Insurance Portability and Accountability Act of 1996 (monitored and enforced by the Office of Civil Rights), the terms of which require healthcare providers (among other things) to safeguard the privacy and security of certain patient protected health information.
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We and our independent subsidiaries are party to various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of business, including claims that services provided to patients by our independent subsidiaries have resulted in injury or death, and claims related to employment and commercial matters. For example, in a four-week medical negligence trial in the State of Arizona, the jury returned a verdict against one of our independent subsidiaries in late November 2023. We are in the process of appealing the jury verdict. We have in the past appealed similar decisions and have, in some circumstances, received decisions in our favor. Although we intend to vigorously defend against these claims and in general these types of claims and cases, there can be no assurance that the outcomes of these matters will not have a material adverse effect on operational results and financial condition. Additionally, in certain states in which we have or have had independent subsidiaries, insurance coverage for the risk of punitive damages arising from general and professional liability litigation may not be available due to state law and/or public policy prohibitions. There can be no assurance that we and or our independent subsidiaries will not be liable for punitive damages awarded in litigation arising in states for which punitive damage insurance coverage is not available.
The skilled nursing and post-acute care industry is heavily regulated. As such, we and our independent subsidiaries are continuously subject to state and federal regulatory scrutiny, supervision and intervention in the ordinary course of business. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition to being subject to regulatory oversight from state and federal agencies, the skilled nursing and post-acute care industry is also subject to regulatory requirements which, if noncompliance is identified, could result in civil, administrative or criminal fines, penalties or restitutionary relief, and/or reimbursement; authorities could also seek the suspension or exclusion of a provider or individual from participation in State and Federal healthcare programs. We believe that there has been, and will continue to be, an increase in governmental investigations of post-acute providers, particularly in alleged Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in civil legal proceedings or governmental investigations, whether currently asserted or arising in the future, could have a material adverse effect on our financial position, results of operations, and cash flows. Additionally, such proceedings and/or investigations can be a distraction to the business of our independent subsidiaries.
We, on behalf of our independent subsidiaries, received a Civil Investigative Demand (CID) from the U.S. Department of Justice (DOJ) in January of 2024 indicating that the DOJ is investigating the Company to determine whether claims have been submitted to Medicare and Texas Medicaid for services which were unnecessary or otherwise not consistent with existing reimbursement requirements. The CID covers the period from January 1, 2016 to the present. As a general matter, our independent subsidiaries maintain policies and procedures to promote compliance with all applicable Medicare and Medicaid requirements, including but not limited to those relating to the presentation of claims for reimbursement for services provided. We are fully cooperating with the DOJ in response to the CID. However, we cannot predict the outcome of the investigation or its potential impact to the consolidated financial statements.
In addition to the potential lawsuits and claims described above, we and our independent subsidiaries are also subject to potential lawsuits under the FCA and comparable state laws alleging the submission of fraudulent claims for services to any Federal and State healthcare program (such as Medicare or Medicaid). A violation may provide the basis for exclusion from federally funded healthcare programs. Such exclusions could also have a correlative negative impact on our financial performance. In addition, and pursuant to the qui tam or "whistleblower" provisions of the FCA, a private individual with knowledge of fraud or potential fraud may bring a claim on behalf of the Federal government, and receive a percentage of any recovery obtained. Due to these whistleblower incentives, qui tam lawsuits have become more frequent.
For example, on May 31, 2018, we, on behalf of our independent subsidiaries, received a CID from the DOJ stating that it was investigating to determine whether there had been a violation of the FCA and/or the Anti-Kickback Statute (AKS) with respect to the relationships between certain of our independent subsidiaries and persons who serve or have served as medical directors. We fully cooperated with the DOJ and promptly responded to its requests for information. In April 2020, we were advised that the DOJ declined to intervene in any subsequent action filed in connection with the subject matter of this investigation. Despite the decision of the DOJ to decline to participate in litigation based on the subject matter of its previously issued CID, the involved qui tam relator moved forward with the complaint in December 2020. From that time until December 2023, and notwithstanding our success in early pre-trial motions, we continued to incur legal defense costs and fees, including significant amounts related to the mandatory exchange of information between the parties in the fourth quarter of 2023. In 2024, we entered into mediation with the involved parties and agreed to settle the civil case for $48.0 million. Following the finalization of the settlement documents and payment of the settlement funds, the qui tam complaint was dismissed and the matter was fully resolved. The settlement does not include admissions on the part of the Company or our independent subsidiaries, and we maintain that we have consistently complied with and continue to comply with all applicable State and Federal statutes (including but not limited to the FCA and the AKS).
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In addition to the FCA, some states, including California, Arizona and Texas, have enacted similar whistleblower and false claims laws and regulations. Further, the Deficit Reduction Act of 2005 created incentives for states to enact anti-fraud legislation modeled on the FCA. As such, we and our independent subsidiaries could face increased scrutiny, potential liability and legal expenses and costs based on claims under state false claims acts in markets where our independent subsidiaries do business.
Under the Fraud Enforcement and Recovery Act of 2009 (FERA), health care providers face significant penalties for the knowing retention of government overpayments, even if no false claim was involved. Health care providers can now be liable for knowingly and improperly avoiding or decreasing an obligation to pay money or property to the government. This includes the retention of any government overpayment. The government can argue, therefore, that an FCA violation can occur without any affirmative fraudulent action or statement, if the action or statement is knowingly improper. In addition, FERA extended protections against retaliation for whistleblowers, including protections not only for employees, but also contractors and agents. Thus, an employment relationship is generally not required in order to qualify for protection against retaliation for whistleblowing.
Healthcare litigation (including class action litigation) is common and is filed based upon a wide variety of claims and theories. We and our independent subsidiaries have been subjected to, and/or are currently involved in, class action litigation alleging violations (alone or in combination) of state and federal wage and hour law related to the alleged failure to pay wages, to timely provide and compensate meal and rest breaks, and other such similar causes of action.
We and our independent subsidiaries have been, and continue to be, subject to claims, findings and legal actions that arise in the ordinary course of the various businesses, including in connection with the delivery of healthcare and non-healthcare services. These claims include but are not limited to potential claims related to patient care and treatment (professional negligence claims) as well as employment related claims. During the three months ended September 30, 2025, we agreed to settle substantially all alleged wage, hour or labor code-related violations asserted on a class or representative basis against our independent subsidiaries in California for purported violations occurring during the six year period ending December 2025, for $12.0 million, pending court approval. While we have been able to settle or otherwise resolve many of these types of claims without an ongoing material adverse effect on our business, a significant increase in the number of these claims, or an increase in the amounts owed should plaintiffs be successful in their prosecution of remaining or future claims, could materially adversely affect our business, financial condition, results of operations and cash flows. In addition, these claims could impact our ability to procure insurance to cover our exposure related to the various services provided by our independent subsidiaries to their residents, customers and patients.
From time to time, various state or Federal agencies may issue requests for information, including but not limited to a subpoena. As an example, OHCA is currently conducting a CMIR with respect to specific components of a proposed transaction involving several of our California operations. We have been and will continue to communicate with OHCA regarding all correspondence and informational requests related to the CMIR.
Both government and private pay sources have instituted cost-containment measures designed to limit payments made to providers of healthcare services, and there can be no assurance that future measures designed to limit payments made to providers will not adversely affect us.
Medicare Revenue Recoupments — We and our independent subsidiaries are subject to regulatory reviews relating to the provision of Medicare services, billings and potential overpayments resulting from reviews conducted via RAC, various Program Safeguard Contractors and Medicaid Integrity Contractors (collectively referred to as Reviews). Reviews vary in claim selection size and processes, ranging from a single episode/claim to larger, multi-claim batches; and from single rounds of review to reviews of multiple rounds with pass/fail criteria. If an operation has a significant error or fails a Review and/or subsequent Reviews, the operation could then be subject to extended review or an extrapolation of the identified error rate to billings in the same time period. We anticipate that these Reviews could increase in frequency in the future. As of September 30, 2025 and through the filing date of this report, 14 of our independent subsidiaries had multi-claim Reviews scheduled or in process.
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Item 1A. RISK FACTORS
We are providing the following summary of the risk factors contained in our Form 10-Q to enhance the readability and accessibility of our risk factor disclosures. We encourage our stockholders to carefully review the risk factors contained in this Form 10-Q in their entirety for additional information regarding the risks and uncertainties that could cause our actual results to vary materially from recent results or from our anticipated future results.
Risks Related to our Business and Industry
•The rules of Medicare and Medicaid, including reductions of reimbursement rates, changes to spending requirements, data reporting, measurement and evaluation standards could have a material, adverse effect on our revenues, financial condition and results of operations.
•State-level direct spending requirements could negatively impact our results of operations.
•Changes to the U.S. healthcare system, both at a state and federal level, including recent regulations, new transparency and disclosure requirements, and potential spending levels, continue to impose new requirements upon us that could materially impact our business.
•Anticipated changes in the U.S. political environment, including those as a result of the change in Presidential administration and control of Congress, and to regulatory agencies, particularly HHS, may result in significant changes to regulatory framework, enforcements, reimbursements and our business.
•We are subject to various government reviews, audits and investigations that could adversely affect our business, including an obligation to refund amounts previously paid to us, potential criminal charges, loss of licensure, the imposition of fines and sanctions.
•We are subject to extensive and complex laws and government regulations. If we are not operating in compliance with these laws and regulations or if these laws and regulations change, we could be required to make significant expenditures or change our operations in order to bring our facilities and operations into compliance.
•Public and government calls for increased enforcement efforts toward SNFs, past and potential rulemaking that results in enhanced enforcement and penalties, and new guidance for surveyors regarding the review of SNFs and enforcement of their Requirements of Participation, could result in increased scrutiny by state and federal survey agencies, including sanctions that could negatively affect our financial condition and results of operations.
•CMS’s changes to the SFF program and its look-back period may create greater risk of our facilities being subject to this program and subject to potential fines and sanctions, even after graduating from the SFF program.
•Future cost containment initiatives undertaken by payors may limit our revenue and profitability.
•Reductions in reimbursements for physician and non-physician services could impact reimbursement for medical professionals.
•We may be subject to increased investigation and enforcement activities related to HIPAA violations.
•Security breaches and other cyber-security incidents could violate security laws and subject us to significant liability.
•If our independent subsidiaries are not fully reimbursed for all services for which each facility bills through consolidated billing, our revenue, financial condition and results of operations could be adversely affected.
•Increased competition for, or a shortage of, nurses and other skilled personnel, could increase our staffing and labor costs and subject us to monetary fines resulting from a failure to maintain minimum staffing requirements under state law, or may affect reimbursement.
•Annual caps, uncertainty regarding reimbursement and other cost-reductions for outpatient therapy services may reduce our future revenue and profitability or cause us to incur losses.
•Increased scrutiny of our activities and billing practices by the OIG or other regulatory authorities may result in an increase in regulatory monitoring and oversight, decreased reimbursement rates, or otherwise adversely affect our business, financial condition and results of operations.
•State efforts to regulate or deregulate the healthcare services industry or the construction or expansion of healthcare facilities could impair our ability to expand our operations, or could result in increased competition.
•Newly enacted legislation in the States where our independent subsidiaries are located may impact the volume and exposure in claims filed and the overall cost of those cases from a defense and indemnity standpoint.
•Changes to federal and state employment-related laws and regulations could increase our cost of doing business.
•Required regulatory approvals could delay or prohibit transfers of our healthcare operations, which could result in periods in which we are unable to receive reimbursement for such properties.
•Compliance with federal and state fair housing, fire, safety, staffing, and other regulations may require us to incur unexpected expenses, which could be costly to us.
•Our revenue, financial condition and results of operations could be negatively impacted by any changes in the acuity mix of patients in our independent subsidiaries as well as payor mix and payment methodologies.
•We are subject to litigation that could result in significant legal costs and large settlement amounts or damage awards. Similarly, a change in the enforceability of arbitration provisions between SNFs and senior living facilities and residents and patients may affect the risks we face from claims and potential litigation.
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•If our regular internal investigations into the care delivery, recordkeeping and billing processes of our independent subsidiaries detect instances of noncompliance, efforts to correct such non-compliance could materially decrease our revenue.
•The OHCA CMIR has the potential to delay, and ultimately prevent, proposed transactions and require disclosure of confidential information.
•We may be unable to complete future facility or business acquisitions at attractive prices or at all, or may elect to dispose of underperforming or non-strategic independent subsidiaries, either of which could decrease our revenue.
•We may not be able to successfully integrate acquired facilities and businesses into our operations, or we may be exposed to costs, liabilities and regulatory issues that may adversely affect our operations.
•In undertaking acquisitions, we may be adversely impacted by costs, liabilities and regulatory issues that may adversely affect our operations.
•If we do not achieve or maintain competitive quality of care ratings from CMS or private organizations engaged in similar monitoring activities, which frequently change, our business may be negatively affected.
•If we are unable to obtain insurance, or if insurance becomes more costly for us to obtain, our business may be adversely affected, and our self-insurance programs may expose us to significant and unexpected costs and losses.
•The geographic concentration of our independent subsidiaries could leave us vulnerable to economic downturn, regulatory changes or acts of nature in those areas.
•The actions of a national labor union that has pursued a negative publicity campaign criticizing our business in the past may adversely affect our revenue and our profitability.
•The risks associated with leased property where our independent subsidiaries operate could adversely affect our business, financial position or results of operations.
•Failure to generate sufficient cash flow to cover required payments or meet operating covenants under our long-term debt, mortgages and long-term operating leases could result in defaults under such agreements and cross-defaults under other debt, mortgage or operating lease arrangements, which could harm our independent subsidiaries and cause us to lose facilities or experience foreclosures.
•A continued housing slowdown or housing downturn could decrease demand for senior living services.
•As we continue to acquire and lease real estate assets, we may not be successful in identifying and consummating these transactions.
•As we expand our presence in other relevant healthcare industries, we would become subject to risks in a market in which we have limited experience.
•If our referral sources fail to view us as an attractive skilled nursing provider, or if our referral sources otherwise refer fewer patients, our patient base may decrease.
•We may need additional capital to fund our independent subsidiaries and finance our growth, and we may not be able to obtain it on terms acceptable to us, or at all, which may limit our ability to grow.
•Delays in reimbursement may cause liquidity problems.
•The utilization and expansion of managed care organizations may contribute to delays or reductions in our reimbursement, including Managed Medicaid.
•Compliance with the regulations of the Department of Housing and Urban Development may require us to make unanticipated expenditures which could increase our costs.
•Failure to safeguard our patient trust funds may subject us to citations, fines and penalties.
•We are a holding company with no operations and rely upon our multiple independent subsidiaries.
•Our implementation of a new enterprise resource planning (ERP) system may adversely affect our business and results of operations or the effectiveness of our internal controls over financial reporting.
•Certain directors who serve on our Board of Directors also serve as directors of Pennant, and ownership of shares of Pennant common stock by our directors and executive officers may create, or appear to create, conflicts of interest.
•Standard Bearer's failure to qualify as a REIT may cause it to be subject to U.S. federal income tax. Additionally, legislative or other actions affecting REITs could have a negative effect on Standard Bearer.
•Failure to comply with existing environmental laws could result in increased expenditures, litigation and potential loss to our business and in our asset value.
Risks Related to Ownership of our Common Stock
•We may not be able to pay or maintain dividends and the failure to do so would adversely affect our stock price.
•Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.
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Risks Related to Our Business and Industry
The rules of Medicare and Medicaid, including reductions of reimbursement rates, changes to spending requirements, data reporting, measurement and evaluation standards could have a material, adverse effect on our revenues, financial condition and results of operations.
We derived 23.5% and 24.0% of our service revenue from the Medicare programs for the three and nine months ended September 30, 2025, respectively, and 24.5% and 25.3% for the three and nine months ended September 30, 2024, respectively. In addition, many other payors may use published Medicare rates as a basis for reimbursements. Accordingly, if Medicare reimbursement rates are reduced or fail to increase as quickly as our costs, if there are changes in the rules governing the Medicare program that are disadvantageous to our business or industry, or if there are delays in Medicare payments, our business and results of operations will be adversely affected.
The Medicare program and its reimbursement rates and rules are subject to frequent change, including statutory and regulatory changes, rate adjustments (including retroactive adjustments), annual caps that limit the amount that can be paid (including deductible and coinsurance amounts), 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. See Item 2., under Government Regulation, Sequestration of Medicare Rates, for further information. 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.
Additionally, payments can be delayed or declined due to determinations that certain costs are not reimbursable or reasonable because either adequate or additional documentation was not provided or because certain services were not covered or considered medically necessary. Additionally, revenue from these payors can be retroactively adjusted after a new examination during the claims settlement process or as a result of post-payment audits. New legislation and regulatory proposals could impose further limitations on government payments to healthcare providers.
CMS often changes the rules governing the Medicare program, including those governing reimbursement. Changes to the Medicare program that could adversely affect our business could include, but are not limited to the following:
•administrative or legislative changes to base rates or the bases for payment, including changes to the rates at which Medicare will reimburse services;
•limits on the services or types of providers for which Medicare will provide reimbursement;
•changes in methodology for patient assessment and/or determination of payment levels;
•the reduction or elimination of annual rate increases, implementation of reimbursement decreases, or the end of the reduced payments deferment (See also, Item 2., under Government Regulation); and
•an increase in co-payments or deductibles payable by beneficiaries.
Among the changes being implemented by CMS are provisions of the IMPACT Act, which imposes a stringent timeline for implementing benchmark quality measures and data metrics across facilities that include SNFs. The enactment mandates specific actions to design a unified payment methodology for post-acute providers, which CMS implements through ongoing regulations. The costs of final implementation may be significant, with potential fines and payment reductions resulting from a failure to meet CMS's implementation requirements. The current Presidential Administration, whether through executive orders or through the actions of HHS, may take additional actions through rulemaking, priority-setting and other exercises of discretion that may materially affect our business in ways that cannot presently be foreseen.
Reductions in reimbursement rates or the scope of services being reimbursed could have a material, adverse effect on our revenue, financial condition and results of operations or even result in reimbursement rates that are insufficient to cover our operating costs. In addition, CMS may make future adjustments to reimbursement levels and underlying reimbursement formulae as it continues to monitor the impact of current payments system on patient outcomes and budget neutrality. The Biden-Harris Administration focused on studying the nursing home industry and directed HHS to issue proposed rules based on those studies, including changes to SNF facility reimbursement and specifically, the SNF-VBP Program, which may also adversely affect our reimbursement. The current Presidential Administration's policy directives and priorities regarding the nursing home industry and SNFs in particular are not yet fully known. As of July 4, 2025, Congress passed and the current Presidential Administration signed into law the OBBB, which reversed and limited the efficacy of certain parts of the ACA, including expansion of the Medicaid program in participating states. Additionally, the current Presidential Administration has taken action prohibiting SNFs’ use of pre-admission arbitration agreements.
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The metrics potentially affecting our revenues and expenses in future government fiscal years include the SNF healthcare-associated infections (HAI) measurement, total nursing hours per resident day measures, and discharge to community - post acute care measure. The Interoperability Final Rule’s implementation beginning in 2026, and to be completed by January 1, 2027, may also adversely affect our reimbursement paid through Medicare, specifically including Medicare Advantage.
Loss of Medicare reimbursement, or a delay or default by the government in making Medicare payments, would also have a material adverse effect on our revenue. Non-compliance with Medicare regulations exist, and any penalty, suspension, termination, or other sanction under any state’s Medicaid program could lead to reciprocal and commensurate penalties being imposed under the Medicare program, up to termination or rescission of our Medicare participation and payor agreements as noted above.
A significant portion of reimbursement for skilled nursing services comes from Medicaid. In fact, Medicaid is our largest source of revenue, accounting for 46.0% and 45.6% of our revenue for the three and nine months ended September 30, 2025, respectively, and 45.7% for both the three and nine months ended September 30, 2024, respectively.
Medicaid is a state-administered program financed by both state funds and matching federal funds. Medicaid spending has increased rapidly in recent years, becoming a significant component of state budgets, which has led both the federal government and many states to institute measures aimed at controlling the growth of Medicaid spending, and in some instances reducing aggregate Medicaid spending. Since a significant portion of our revenue is generated from our skilled nursing independent subsidiaries in California, Texas and Arizona, any budget reductions or delays in these states could adversely affect our net patient service revenue and profitability. Due to recent fluctuations in state budgets many of the states in which we operate (including those with current budget surpluses), are seeking to contain costs on Medicaid outlays for SNFs, and any such decline could adversely affect our financial condition and results of operations.
The Medicaid program and its reimbursement rates and rules are subject to frequent change at both the federal and state level, including through changes in laws, regulations, rate adjustments (including retroactive adjustments), administrative or executive orders and government funding restrictions, all of which may materially adversely affect the rates at which our services are reimbursed by state Medicaid plans or the amount of expense we incur.
To generate funds to pay for the increasing costs of the Medicaid program, many states utilize financial arrangements commonly referred to as provider taxes. The OBBB’s passage prohibits the imposition of new provider taxes or increase of existing provider taxes, except for intermediate care facilities and nursing homes. Under provider tax arrangements, states collect taxes from healthcare providers and then use the revenue to pay the providers as a Medicaid expenditure, which allows the states to then claim additional federal matching funds on the additional reimbursements. Current federal law provides for a cap on the maximum allowable provider tax as a percentage of the providers' total revenue. There can be no assurance that federal law will continue to provide matching federal funds on state Medicaid expenditures funded through provider taxes, or that the current caps on provider taxes will not be reduced.
The changes to the Medicaid program enacted in the OBBB limits avenues for states to generate Medicaid funding, and may limit who may qualify for Medicaid long-term care benefits. Additionally, states must conduct Medicaid eligibility redeterminations every six months, rather than annually, for individuals enrolled under Medicaid. Any discontinuance or reduction in federal matching of provider tax-related Medicaid expenditures or delays in eligibility or coverage could have a significant and adverse effect on states' Medicaid expenditures (e.g., California, Colorado, and Nevada), and as a result could have a material and adverse effect on our business, financial condition or results of operations.
The federal government shutdown does not immediately affect Medicare and Medicaid programs because payments under each program continue even during a lapse of appropriations in most instances. Also, the contingency plans in place for such programs require certain minimum staffing and funding for such programs to continue. However, the shutdown may cause delays in oversight and administration of such programs or even pause certain functions within the program. This includes processes related to claims review, waiver approvals, provider enrollment and other technical assistance under the programs. The shutdown will also result in a reduced workforce overseeing the programs. As a result, these changes may cause payments to be delayed and adversely affect certain aspects of our independent subsidiaries' financial operations. The longer the shutdown is in effect the more likely additional challenges may arise due to these administrative burdens.
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State-level direct spending requirements could negatively impact our results of operations.
Certain states where the Company operates have implemented direct spending requirements requiring SNFs to spend a portion of their revenue, particularly including Medicaid-derived revenue, on expenses directly relating to care. These spending requirements could affect our operational results and place the Company at higher risk of suffering non-compliance consequences, such as penalties, pay-backs, restrict admissions and/or operational/financial penalties.
For example, Washington state incorporates the costs of direct care, indirect care, and capital expenditures for SNF services in computing the State’s Medicaid payments to nursing facilities. Using periodically updated calculations that account for factors including case acuity, fair market value of capital expenditures, inflation, and facility performance, Washington sets facility compensation so that the majority of Medicaid reimbursement paid to a skilled nursing facility is used for care-related activities, with limitations on how much a facility’s reimbursement may increase from year to year. Washington state first adopted this care-based payment model in 2015 and has periodically updated it since, including in 2020, 2022, and 2023; it is expected that Washington will continue to amend this law in the future. For state fiscal year 2024, Texas requires all nursing facilities must show that a portion of funds paid to SNFs by Texas’s Medicaid program, including both fee-for-service and managed care reimbursement, were expended for direct care activities, including direct care staff wages and benefits. For state fiscal year 2025, Texas is replacing the previous spending requirement with the patient care expense ratio (PCER) which measures the proportion of a facility's Medicaid revenue that is spent on patient care expenses. The PCER is a financial accountability metric and will be reported annually.
In addition, California in the past has proposed bills that, if passed, would require nursing facilities to spend a stated percentage of revenue on direct patient-related services. While the most recent attempt by the California Assembly (Bill 1537) to impose direct spending requirements on SNFs has been placed in suspense with no action being taken, similar legislation in the future may seek to impose identical or analogous funding requirements for SNFs operating in California or other states.
Reforms to the U.S. healthcare system, including new regulations under the ACA, continue to impose new requirements upon us that could materially impact our business.
As discussed in greater detail in Item 2., under Government Regulation, the ACA has resulted in significant changes to our operations and reimbursement models for services we provide. CMS continues to issue rules to implement the ACA, including rules regarding the implementation of the anti-discrimination provisions and disclosure of SNF ownership, organization, management and the identity of the real property owners from which the SNF leases or subleases its operating space.
With the passage of the IRA in 2022, Congress expanded and supplemented the ACA, including through the continuation of federally funded insurance premium subsidies. This modification of the ACA by the IRA indicates that Congress may continue to change and expand the ACA in the future. Since the commencement of the current Presidential Administration in January of 2025, there have been executive actions and proposed legislation, including the enactment of the OBBB, which undoes or limits the effect of portions of the ACA, including its Medicaid expansion provisions. The OBBB’s provisions may also affect the availability of Medicaid for potential beneficiaries due to work requirements, limit eligibility for our independent subsidiaries’ services due to caps on home equity that may be disregarded for eligibility purposes and also limit the reimbursement available for our services under Medicaid. These legislative changes, and the effects of the current Presidential Administration’s executive orders, are not yet fully realized in terms of their effects on our business.
The efficacy of the ACA is the subject of much debate among members of Congress and the public and it has been the subject of extensive litigation before numerous courts, including the United States Supreme Court, with varying outcomes — some expanding and others limiting the ACA. If the ACA is repealed or any elements of the ACA that are beneficial to our business are materially amended or changed, as is the case under the OBBB as enacted, such as provisions regarding the health insurance industry, reimbursement and insurance coverage by payers, our business, operating results and financial condition could be harmed. Thus, the future impact of the ACA on our business is difficult to predict and its continued uncertain future may negatively impact our business.
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While it is not possible to predict whether and when any such changes will occur, specific proposals discussed leading up to the 2024 presidential election by the current Presidential Administration, including a repeal or material amendment of the ACA, could harm our business, operating results and financial condition. The ACA continues to be a salient political topic and proposed changes to it may become the subject of campaign promises, litigation, administrative action, or legislation under the current Presidential Administration, and the Senate, where the Republican party now holds a majority of seats. In addition, even if the ACA is not amended or repealed, the President and the executive branch of the federal government, as well as CMS and HHS, have a significant impact on the implementation of the provisions of the ACA. It is expected that the current Presidential Administration will make changes affecting the implementation and enforcement of the ACA, which could harm our business, operating results and financial condition. We have already seen such changes with the current Presidential Administration's impacts to the Biden-Harris Administration's regulatory activity promulgating rules regarding anti-discrimination under Section 1557 of the ACA and rulemaking requiring SNFs to disclose their ownership and the ownership of service providers under Section 6101 of the ACA. It is not possible to know whether, when, or how any or all of these regulations or their implementation will be changed, the manner in which any change may be effected, and the ultimate effects of such changes on our business. If we are slow or unable to adapt to any such changes, our business, operating results and financial condition could be adversely affected.
In 2023, CMS issued a final rule requiring SNFs to disclose certain information regarding their ownership and managerial relationships which was fully implemented in November of 2024. In furtherance of this rule, CMS is requiring all SNFs to revalidate certain information using CMS's newly promulgated SNF Attachment by January 1, 2026. These disclosure requirements are more invasive and comprehensive than the ownership information already disclosed through Medicare's Nursing Home Compare website. Refer to Item 2., under Government Regulation, for additional information. The breadth of disclosure required by this new rule may be adverse to our business interests and detrimental to our operations, revenue, and profitability and may have a chilling effect on investment due to the depth of the new reporting and transparency requirements. Similarly, California passed a comparable law requiring the disclosure of certain ownership and financial information for SNFs in 2021. On March 6, 2024, California’s regulations implementing this law took effect, which may invite further scrutiny and potential legal action, whether by the state agencies or private parties, within California based on the information disclosed as required by this law and its enabling regulations.
We cannot predict what effect future reforms to the U.S. healthcare system will have on our business, including the demand for our services or the amount of reimbursement available for those services. However, it is possible these new laws may lower reimbursement or increase the cost of doing business and adversely affect our business.
Anticipated changes in the U.S. political environment, including those as a result of the change in Presidential administration and control of Congress, and to regulatory agencies, particularly HHS, may result in significant changes to regulatory framework, enforcements, reimbursements and our business.
As a result of the 2024 presidential election, changes in control of in the Presidency and the Senate that took effect in January of 2025 have resulted in changes to have caused, and will continue to cause uncertainty with respect to, legislation, regulation, implementation or repeal of laws and rules related to government health programs, including Medicare and Medicaid. This includes changes to the Medicaid program contained in the OBBB, which could reduce Medicaid funds available for reimbursement, potentially limit the amount of reimbursement paid by Medicaid for our services, potentially limit our potential resident population, adversely affect potential residents’ eligibility and ability to pay for services performed by our independent subsidiaries. Further, proposals regarding HHS and certain programs and regulation concerning health care, including Medicare, Medicaid, and the ACA, have indicated that the current Presidential Administration seeks to make changes to these programs and laws, as well as their implementation.
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. In the months since then, the tariffs with various countries have been increased, decreased, paused, and reinstated as part of a broader trade negotiation strategy that has caused uncertainty in various product markets. 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.
Changes to existing policies and rules regarding nursing facilities, including those recently instituted, in addition to anticipated new rule proposals, may result in significant regulatory changes, increased survey frequency and scope, and increased penalties for non-compliance. With the changes in the presidential administration, we anticipate that there may be changes in legislative control and legislative priorities. As a result, future legislation may be proposed or passed that may adversely affect our business, operating results and financial condition.
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We continually monitor these developments in order to respond to the changing regulatory environment impacting our business. While it is not possible to predict whether and when any such changes will occur, specific proposals discussed during and after the election, including a repeal or material amendment of the ACA, potential cuts to the Medicare or Medicaid programs by Congress through the budget reconciliation process, or other laws affecting the provision of healthcare services, could harm our business, operating results and financial condition. If we are slow or unable to adapt to any such changes, our business, operating results and financial condition could be adversely affected.
We are subject to various government reviews, audits and investigations that could adversely affect our business, including an obligation to refund amounts previously paid to us, potential criminal charges, the imposition of fines, and/or the loss of our right to participate in Medicare and Medicaid programs.
As a result of our participation in the Medicaid and Medicare programs, we are subject to various governmental reviews, audits and investigations to verify our compliance with the rules associated with these programs and related applicable laws and regulations, including our claims for payments submitted to those programs, which are subject to reviews by Recovery Audit Contractors, Zone Program Integrity Contractors, Program Safeguard Contractors, Unified Program Integrity Contractors, Supplemental Medical Review Contractors and Medicaid Integrity Contractors programs (collectively referred to as Reviews). In these Reviews, third-party firms engaged by CMS conduct extensive analysis of claims data and medical and other records to identify potential improper payments under the federal and state programs. The SNF PPS FY 2025 Final Rule introduced higher penalties that surveyors can impose on SNFs if they are found to be non-compliant with CMS’s requirements for SNF participation in Medicare program. In addition, in 2023, CMS updated the survey resources and guidelines used both by CMS and state surveyors in evaluating our SNFs’ compliance with federal participation requirements. These updates included new approaches for evaluating infection control procedures, reflecting recent changes in CMS's survey methodologies.
In 2022, CMS updated guidance for Phase 2 and 3 of the requirements of participation, discussed in greater detail in Item 2., under Government Regulation. The application of CMS’s new guidance could result in more aggressive and stringent surveys, and potential fines, penalties, sanctions, or administrative actions taken against our independent subsidiaries. Also described in Item 2., under Government Regulation, the Interoperability Final Rule and its changes intended to facilitate data exchange between and among patients, providers, and payors, will be implemented beginning in 2026 and must be fully implemented by January 1, 2027. This rule and the greater access to and use of data between and among payors transmitting funds for state and federal healthcare programs, may also trigger additional scrutiny or review of facilities such as ours, and may adversely affect our reimbursement paid through state and federal programs including Medicaid.
CMS announced a new nationwide audit the “SNF 5-Claim Probe & Educate Review,” in which the Medicare Administrative Contractors will review five claims from each of the facilities to check for compliance with PDPM billings, which could result in individual claim payment denials if errors are identified. All facilities that are not undergoing Targeted Probe and Educate (TPE) reviews, or have not recently passed a TPE review, will be subject to the nationwide audit.
Private payors also reserve the right to conduct audits. We believe that billing and reimbursement errors and disagreements are common in our industry, and thus we are regularly engaged in reviews, audits and appeals of our claims for reimbursement due to the subjectivities inherent in the process related to patient diagnosis and care, record keeping, claims processing and other aspects of the patient service and reimbursement processes, and the errors and disagreements those subjectivities can produce. An adverse review, audit or investigation could result in:
•an obligation to refund amounts previously paid to us pursuant to the Medicare or Medicaid programs or from private payors, in amounts that could be material to our business;
•state or federal agencies imposing fines, penalties or other sanctions on us;
•temporary or permanent loss of our right to participate in the Medicare or Medicaid programs or one or more private payor networks;
•an increase in private litigation against us; and
•damage to our reputation in the geographies served by our independent subsidiaries.
Although we have always been subject to post-payment audits and reviews, more intensive “probe reviews” performed by Medicare administrative contractors in recent years appear to be a regular procedure with our fiscal intermediaries. All findings of overpayment from CMS contractors are eligible for appeal. With the exception of rare findings of overpayment related to objective errors in Medicare payment methodology or claims processing, we utilize all defenses reasonably available to us to demonstrate that the services provided meet all clinical and regulatory requirements for reimbursement.
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In cases where claim and documentation review by a CMS contractor results in repeated unsatisfactory results, an operation can be subjected to protracted regulatory oversight. This CMS oversight may include education and sampling of claims, extended pre-payment review, referral of the operating business to recovery audit or integrity contractors, or extrapolation of an error rate to other reimbursement made outside of specifically reviewed claims. Ongoing failure to demonstrate improvement towards meeting all claim filing and documentation requirements could ultimately lead to Medicare decertification. As of September 30, 2025 and through the filing date of this report, 14 of our independent subsidiaries had multi-claim reviews scheduled or in process, either pre- or post-payment. We anticipate that these reviews could increase in frequency in the future.
Additionally, both federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare companies and, in particular, SNFs. The focus of these investigations includes, among other things, billing and cost reporting practices; quality of care provided; financial relationships with referral sources; and the medical necessity of rendered services. For example, refer to the matter discussed in Part II, Item 1., Legal Proceedings.
If we should agree to a settlement of claims or obligations under Medicare statutes, the FCA, or similar federal or state statutes and related regulations, our business, financial condition and results of operations and cash flows could be materially and adversely affected, and our stock price could be adversely impacted. Among other things, any settlement or litigation could involve the payment of substantial sums to settle any alleged civil violations and may also include our assumption of specific procedural and financial obligations going forward under a corporate integrity agreement or other arrangement with the government.
If the government or a court were to conclude that errors and deficiencies constitute criminal violations and/or that such errors and deficiencies resulted in the submission of false claims to federal healthcare programs, or were to discover other problems in addition to the ones identified by the probe reviews that rose to actionable levels, we and certain of our officers might face potential criminal charges and civil claims, administrative sanctions and penalties for amounts that could be material to our business, results of operations and financial condition. In addition, we or some of the key personnel of our independent subsidiaries could be temporarily or permanently excluded from future participation in state and federal healthcare reimbursement programs such as Medicaid and Medicare.
If any of our independent subsidiaries is decertified or loses its licenses, our revenue, financial condition or results of operations would be adversely affected. In addition, the report of such issues at any of our independent subsidiaries could harm our reputation for quality care and lead to a reduction in the patient referrals to and ultimately a reduction in occupancy at these facilities. Also, responding to auditing and enforcement efforts diverts material time, resources and attention away from our management team and our staff, and could have a materially detrimental impact on our results of operations during and after any such investigation or proceedings, regardless of whether we prevail on the underlying claim.
We are subject to extensive and complex laws and government regulations. If we are not operating in compliance with these laws and regulations or if these laws and regulations change, we could be required to make significant expenditures or change our operations in order to bring our facilities and operations into compliance.
We, along with other companies in the healthcare industry, are required to comply with extensive and complex laws and regulations at the federal, state and local government levels relating to, among other things:
•licensure and certification;
•disclosure of ownership and affiliated parties;
•adequacy and quality of healthcare services;
•qualifications of healthcare and support personnel;
•state-specified mandates for specific nurse staffing levels;
•quality and maintenance of medical equipment and facilities;
•confidentiality, maintenance and security issues associated with medical records and claims processing;
•relationships with physicians and other referral sources and recipients;
•constraints on protective contractual provisions with patients and third-party payors;
•operating policies and procedures;
•addition of facilities and services; and
•billing for services.
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The laws and regulations governing our operations, along with the terms of participation in various government programs, regulate how we conduct our business, the services we offer, and our interactions with patients and other healthcare providers. These laws and regulations are subject to frequent change. CMS's ownership transparency rule, which was fully implemented by November of 2024, and similar state disclosure requirements such as California’s, discussed in Item 2., under Government Regulation, may provide an additional basis for further investigation, administrative action and ultimately fines, penalties, or sanctions if finalized, and may dissuade parties from working with us or our independent subsidiaries due to the reporting and disclosure obligations of being an Additional Disclosable Party under that final rule.
We believe that such regulations may adversely affect our business, operation and profitability. The quantity and scope of these regulations may increase in the future, and we cannot predict the ultimate content, timing or impact on us of any healthcare reform legislation. If we fail to comply with these applicable laws and regulations, or their interpretations as determined by courts or enforced by regulators, we could suffer civil or criminal penalties and other detrimental consequences, including denial of reimbursement, imposition of fines, temporary suspension of admission of new patients, suspension or decertification from the Medicaid and Medicare programs, restrictions on our ability to acquire new facilities or expand or operate existing facilities, the loss of our licenses to operate and the loss of our ability to participate in federal and state reimbursement programs. Additionally, in the future, different interpretations or enforcement of these laws and regulations could subject our current or past practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses.
As discussed in greater detail in Item 2., under Government Regulation, we are subject to federal and state laws intended to prevent healthcare fraud and abuse. Possible sanctions for violation of any of these laws and regulations include loss of eligibility to participate in federal and state reimbursement programs and civil and criminal penalties. If we fail to comply, even inadvertently, with any of these requirements, we could be required to alter our operations, refund payments to the government, enter into a corporate integrity agreement, deferred prosecution or similar agreements with state or federal government agencies, and become subject to significant civil and criminal penalties.
These anti-fraud and abuse laws and regulations are complex, and we do not always have the benefit of significant regulatory or judicial interpretation of these laws and regulations. While we do not believe we are in violation of these prohibitions, we cannot assure you that governmental officials charged with the responsibility for enforcing these prohibitions will not assert that we are violating the provisions of such laws and regulations.
We are unable to predict the future course of federal, state and local regulation or legislation, including as it pertains to Medicare, Medicaid, or fraud and abuse laws, and how they are enforced. Changes in the regulatory framework, our failure to obtain or renew required regulatory approvals, credentials, qualifications, or licenses or to comply with applicable regulatory requirements, or the imposition of other enforcement sanctions, fines or penalties could have a material adverse effect upon our business, financial condition or results of operations. Furthermore, should we lose licenses or certifications for a number of our facilities or other businesses as a result of regulatory action or legal proceedings, we could be deemed to be in default under some of our agreements, including agreements governing outstanding indebtedness.
Public and government calls for increased survey and enforcement efforts toward SNFs, past and potential rulemaking that results in enhanced enforcement and penalties, could result in increased scrutiny by state and federal survey agencies. In addition, potential sanctions and remedies based upon alleged regulatory deficiencies could negatively affect our financial condition and results of operations.
CMS's efforts to enhance its enforcement powers and increase enforcement activities towards SNFs, as discussed in Item 2., under Government Regulation, result in state survey agencies having more accountability for their survey and enforcement efforts. Within the SNF PPS FY 2025 Final Rule, CMS obtained greater ability to impose monetary penalties upon SNFs for incident-based and day-based violations of CMS’s conditions of participation. Further, the enhanced penalties against SFFs under the Biden-Harris Administration represented further federal calls for transparency, oversight and penalties for low-ranked and underperforming SNFs. These policies may prove to be popular, effective, or otherwise desirable and might not change with a new Presidential Administration, including under new leadership of HHS and CMS. These enhanced penalties and enforcement activities precedes greater focus by CMS in obtaining oversight over SFFs, and continuing that oversight even after those SFFs improve, and subjecting them to more exacting and routine oversight. The likely result may be more frequent surveys of our independent subsidiaries, with more substantial penalties, fines and other consequences if they do not perform well. For low-performing facilities in the SFF program, the standards for successfully emerging from that program and not being subject to ongoing and enhanced government oversight will be higher and measured over a longer period of time, prolonging the risks of monetary penalties, fines and potential suspension or exclusion from the Medicare and Medicaid programs.
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From time to time in the ordinary course of business, we receive deficiency reports from state and federal regulatory bodies resulting from such inspections or surveys. CMS's updated guidance to these surveyors incorporates recent changes to CMS’s methods for surveying infection control procedures. Additionally, CMS's rule requiring disclosure of ownership and financial relationships between nursing facilities and property owners or management entities, which now carries new requirements for re-certification by January 1, 2026, as well as other state rules over ownership transparency, may provide an additional basis for further investigation, administrative action, and ultimately fines, penalties, or sanctions and could dissuade individuals and businesses from doing business with us or our independent subsidiaries.
Although most inspection deficiencies are resolved through an agreed-upon plan of corrective action, the reviewing agency typically has the authority to take further action against a licensed or certified facility. These remedial actions could result in the imposition of fines, imposition of a license to a conditional or provisional status, suspension or revocation of a license, suspension or denial of payment for new admissions, loss of certification as a provider under state or federal healthcare programs, or imposition of other sanctions, including criminal penalties. In the past, we have experienced inspection deficiencies that have resulted in the imposition of a provisional license and could experience these results in the future.
Furthermore, in some states, citation of one independent subsidiary could negatively impact other independent subsidiaries in the same state. Revocation of a license at a given facility could therefore impair our ability to obtain new licenses or to renew, or maintain, existing licenses at other facilities, which may also trigger defaults or cross-defaults under our leases and our credit arrangements, or adversely affect our ability to operate or obtain financing in the future. CMS’s rules requiring disclosure of ownership, management and the owners of real property lessors or sublessors, which are greater and more intrusive than existing disclosure requirements heighten this risk. Our failure to comply with applicable legal and regulatory requirements in any single facility could negatively impact our financial condition and results of operations.
From time to time, we have opted to voluntarily stop accepting new patients pending completion of a revisit survey, in order to avoid possible denial of payment for new admissions during the deficiency cure period, or simply to avoid straining staff and other resources while retraining staff, upgrading operating systems or making other operational improvements. If we elect to voluntarily close any operations in the future or to opt to stop accepting new patients pending completion of a state or federal survey, it could negatively impact our financial condition and results of operation.
We have received notices of potential sanctions and remedies based upon alleged regulatory deficiencies from time to time, and such sanctions have been imposed on some of our independent subsidiaries. We have had independent subsidiaries placed on SFF status in the past and other independent subsidiaries may be identified for such status in the future. We currently have one facility placed on SFF status.
CMS’s changes to the SFF program and its look-back period may create greater risk of our facilities being subject to this program and subject to potential fines and sanctions, even after graduating from the SFF program.
As discussed in greater detail in Item 2., under Government Regulation, in 2022 CMS updated the SFF program with the intent to reduce the amount of time a SNF spends as an SFF and increase the number of nursing homes that progress through the SFF program. The OIG has been studying the SFF program, including its 2022 updates, to understand the program’s outcomes, identify factors that aided SFFs that successfully graduated the SFF program with sustained quality improvements, and make further changes based on the data obtained in this study. In June of 2024, the OIG added the SFF program to its Work Plan for continued attention. CMS clarified certain details of the SFF program updates in 2023 and how they are to be implemented by each state survey agency (SA). As part of the revisions to the SFF program, a priority in revising the SFF program was to address “yo-yo” noncompliance of SNFs that would graduate from the SFF program only to later see their compliance and quality measures regress after graduation, potentially requiring readmission to the SFF program. Among the measures implemented to avoid this issue of “yo-yo” noncompliance was a three-year look-back period for facilities that graduate from the SFF program to ensure that the quality and compliance improvements achieved through the SFF program were sustained. Facilities that graduate from the SFF program but continue to demonstrate poor compliance as evidenced by any SA’s survey, such as for actual harm, substandard quality of care, or immediate jeopardy deficiencies, may be subject to enhanced enforcement by CMS, up to and including termination from the Medicare and/or Medicaid programs.
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This three-year look-back for sustained improvements by facilities that graduate the SFF program poses risk for our independent subsidiaries, specifically those that may be subject to the SFF program or that have been subject to the SFF program in the past. As of September 30, 2025, we have one facility that graduated from the SFF program within the past three years. First, for SNFs that are selected by CMS for participation in the SFF program, or which currently are in the SFF program, even graduation from the program is no longer an assurance that the SNF will be able to continue its operations. Even one survey with a significant compliance deficiency, such as actual harm or an immediate jeopardy deficiency, may result in CMS—acting solely within its discretion—terminating the SNF’s Medicare or Medicaid participation, likely triggering the termination of other payor contracts and rendering the facility economically unviable. Second, for SNFs that have graduated from the SFF program, they are subject to a three-year period of enhanced scrutiny where adverse findings by a SA and a single survey’s finding of poor compliance may result in CMS discretionally terminating that facility’s Medicare and/or Medicaid participation, which would likely cause other payors to terminate their agreements with the facility as well. As a result, the financial and manpower resources needed for graduation from the SFF program may be for nothing if, in the three years following graduation from the SFF program, a SNF receives a poor survey result and CMS imposes fines and penalties up to the termination of the facility’s Medicare and Medicaid participation.
As discussed above, Medicare and Medicaid represent significant sources of payment for our independent subsidiaries. Any of our facilities’ loss of a Medicare or Medicaid contract would significantly harm the financial performance of that facility. Additionally, if CMS perceived there to be common upstream ownership of multiple facilities that were participants in or graduates of the SFF program, CMS may seek to take enforcement actions against those other facilities due to their common ownership based on another facility’s deficiencies after graduating the SFF program, with CMS imposing penalties up to and potentially including termination of those SNFs’ participation in the Medicare and/or Medicaid programs.
Future cost containment initiatives undertaken by private third-party payors may limit our revenue and profitability.
Our non-Medicare and non-Medicaid revenue and profitability are affected by continuing efforts of third-party payors to maintain or reduce costs of healthcare, such as by lowering payment rates, narrowing the scope of covered services, increasing case management review of services and negotiating pricing. In addition, sustained unfavorable economic conditions may affect the number of patients enrolled in managed care programs and the profitability of managed care companies, which could result in reduced payment rates.
Third-party payors may not make timely payments for our services, and we may be unable to maintain our current payor or revenue mix. We are continuing our efforts to develop our non-Medicare and non-Medicaid sources of revenue and any changes in payment levels from current or future third-party payors could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Reductions in Medicare reimbursements for physician and non-physician services could impact reimbursement for medical professionals.
As discussed in greater detail in Item 2., under Government Regulation, MACRA revised the payment system for physician and non-physician services. The changes to the therapy caps imposed on Medicare Part B outpatient therapy from this law have been changed by the BBA and are subject to future budgetary changes through rulemaking and legislation, resulting in ongoing uncertainty regarding payment for these Medicare Part B services. Under both the 2024 and 2025 PFS Final Rules, reductions in conversion factor, payments to providers and conditions imposed in exchange for higher payments may impose operational requirements and working conditions that further detract from and reduce our financial performance. Although the 2026 PFS Proposed Rule indicates there may be an increase in conversion factors, this is not a guarantee until a final rule is effective and does not guarantee increases will occur again in the future rulemakings, or that Congress will defer or limit the impact of cuts due to Medicare sequestration. Similarly, new final rules concerning the PACE program and the information it will collect from our independent subsidiaries may adversely affect the risk-adjusted reimbursement.
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We may be subject to increased investigation and enforcement activities related to HIPAA violations.
HIPAA, as amended by the HITECH Act, requires us to adopt and maintain business procedures and systems designed to protect the privacy, security and integrity of patients' individual health information, in addition to state laws governing the privacy of patient information. We must comply with these state privacy laws to the extent that they are more protective of healthcare information or provide additional protections not afforded by HIPAA. The regulations enacting HIPAA periodically change and the last proposed change was issued in late 2022. In 2024, CMS published the Interoperability Final Rule, which affects the data standards and APIs that entities may use. Additionally, CMS issued its final rule updating the separate confidentiality requirements for Substance Use Disorder (SUD) records maintained. Changes to these regulations may require our independent subsidiaries to modify certain policies, procedures and practices regarding the disclosure of residents’ information. If we fail to comply with these state and federal laws, we could be subject to criminal penalties, civil sanctions, litigation, and be forced to modify our policies and procedures, in addition to undertaking costly breach notification and remediation efforts, as well as sustaining reputational harm.
In addition to breaches of protected patient information, under HIPAA and the 21st Century Cures Act (Cures Act) and other federal regulations, healthcare entities are also required to afford patients with certain rights of access to their health information and to promote sharing of patient data between and among healthcare providers involved in the same patient's course of care. Recently, the Office for Civil Rights, the agency responsible for HIPAA enforcement, has targeted investigative and enforcement efforts on violations of patients’ rights of access, imposing significant fines for violations largely initiated from patient complaints. If we fail to comply with our obligations under HIPAA, we could face significant fines. Likewise, if we fail to comply with our obligations under the Cures Act, we could face fines from the Office of the National Coordinator for Health Information Technology, the agency responsible for Cures Act enforcement.
Security breaches and other cyber-security incidents could violate security laws and subject us to significant liability.
Healthcare businesses are increasingly the target of cyberattacks whereby hackers disrupt business operations or obtain protected health information, often demanding large ransoms. In 2024, healthcare was among the most-breached sector of the economy based on publicly disclosed information. This trend of healthcare as a vulnerable cybersecurity target continues in 2025 and is expected to remain a significant risk in the future. The frequency of this activity has increased precipitously over the last five years. Our business is dependent on the proper functioning and availability of our computer systems and networks. We cannot assure you that our safety and security measures and disaster recovery plan will prevent damage, interruption or breach of our information systems and operations. Additionally, we cannot control the safety and security of our information held by third-party vendors with whom we contract. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect, and as such we (or third-party vendors) may be unable to anticipate these techniques or implement adequate preventive measures. In addition, hardware, software or applications we (or third-party vendors) develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security of information systems. Unauthorized parties may attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud or other forms of deception. Additionally, the rapid ongoing evolution and increased adoption of emerging technologies such as artificial intelligence and machine learning may make it more difficult to anticipate and implement protective measures to recognize, detect and prevent the occurrence of data breaches, including but not limited to cybersecurity breaches.
On occasion, we have acquired additional information systems through our business acquisitions, and these acquired systems may expose us to risk. We also license certain third-party software to support our operations and information systems. Our inability, or the inability of third-party vendors, to continue to maintain and upgrade information systems and software could disrupt or reduce the efficiency of our operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems also could disrupt or reduce the efficiency of our operations.
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A cyber-attack or other incident that bypasses the security measures of our information systems could cause a security breach, which may lead to a material disruption to our information systems infrastructure or business, significant costs to remediate (e.g., data recovery) and may involve a significant loss of business or patient health information. If a cyber-attack or other unauthorized attempt to access our systems or facilities were successful, it could also result in the theft, destruction, loss, misappropriation or release of confidential information or intellectual property, and could cause operational or business delays that may materially impact our ability to provide various healthcare services. Any successful cyber-attack or other unauthorized attempt to access our systems or facilities also could result in negative publicity which could damage our reputation or brand with our patients, referral sources, payors or other third parties and could subject us to a number of adverse consequences, the vast majority of which are not insurable, including but not limited to, disruptions in our operations, regulatory and other civil and criminal penalties, fines, investigations and enforcement actions (including, but not limited to, those arising from the SEC, FTC, OCR, the OIG or state attorneys general), fines, private litigation with those affected by the data breach (including class action litigation), loss of customers, disputes with payors and increased operating expense, which either individually or in the aggregate could have a material adverse effect on our business, financial position, results of operations, liquidity, and stock price.
We may not be fully reimbursed for all services for which each facility bills through consolidated billing, which could adversely affect our revenue, financial condition and results of operations.
SNFs are required to perform consolidated billing for certain items and services furnished to patients and residents. The consolidated billing requirement requires the SNF to effectively bill for the entire package of care that its patients receive in these situations. If more payments are required to be bundled in the future, this trend may continue, with our SNFs not receiving full reimbursement for all the services they provide, and have a further adverse effect on SNF utilization and revenue.
Increased competition for, or a shortage of, nurses and other skilled personnel could increase our staffing and labor costs and subject us to monetary fines.
Our success depends upon our ability to retain and attract nurses and other skilled personnel, such as Certified Nurse Assistants, social workers and speech, physical and occupational therapists, as well as skilled management personnel responsible for day-to-day facility operation. Each facility has a facility leader responsible for the overall day-to-day operations of the facility, including quality of care, social services and financial performance. Depending upon the size of the facility, each facility leader is supported by facility staff who are directly responsible for day-to-day care of the patients, marketing and community outreach programs. Other key positions supporting each facility may include individuals responsible for physical, occupational and speech therapy, food service and maintenance. We compete with various healthcare service providers, including other skilled nursing providers, in retaining and attracting qualified and skilled personnel.
Our independent SNFs are located in the states of Alabama, Alaska, Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oregon, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin. All states follow the current federal regulation relative to staffing, which establishes that SNFs are required to staff to meet the needs of the residents present in the facility. In addition, several states have established minimum staffing requirements for facilities operating in those states.
Failure to comply with these requirements can, among other things, jeopardize a facility's compliance with the conditions of participation under relevant state and federal healthcare programs. If a facility is determined to be out of compliance with these requirements, it may be subject to a notice of deficiency, a citation, or a significant fine or litigation risk, with penalties including the suspension of patient admissions and the termination of Medicaid participation, or the suspension, revocation or non-renewal of the SNF's license.
Nonetheless, for the federal government or any state government to materially change the way compliance with the minimum staffing standard is calculated or enforced, our labor costs could increase and the current shortage of healthcare workers could impact us more significantly. The broader labor market where we compete is in a state of disequilibrium where the needs of businesses such as ours outstrip the supply of available and willing workers. There is additional upward pressure on wages from different industries and more generally due to the current rate of inflation. Some of these industries compete with us for labor and others that do not, which makes it difficult to make significant hourly wage and salary increases due to the fixed nature of our reimbursement under insurance contracts as well as Medicare and Medicaid (which may face challenges as a result of the enactment of the OBBB), in addition to our increasing variable costs. Due to the limited supply of qualified applicants who seek or are willing to accept employment, these broader concerns, may increase our labor costs or lead to potential staffing shortages, reduced operations to comply with applicable laws and regulations, or difficulty complying with those laws and regulations at current operational levels.
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Laws and regulations may increase our costs of maintaining qualified nursing and skilled personnel, or make it more difficult for us to attract or retain qualified nurses and skilled staff members. Proposed legislation, such as the previously proposed Nursing Home Improvement Act and the proposed HCBS Access Act, may make it more expensive to compete for, hire, and retain nursing staff, if passed into law in substantially the same form as previously introduced to Congress. Although the Staffing Rule is not likely to take effect due to HHS and CMS's abandonment of appeals in its defense, promulgation of an interim final rule to prohibit the Staffing Rule's staffing ratios from taking effect, and defunding of the Staffing Rule by the OBBB, future presidential administrations may revive this concept and seek to restore that rule or impose new staffing rules that are equally or more stringent.
State-level staffing requirements in the states where our independent SNFs operate, whether such requirements are passed by statute, regulation, or executive order, may result in a shortage or inability to obtain nurses and skilled staff. Prior concerns about the COVID-19 vaccination IFR may be abated by the Omnibus Final Rule’s withdrawal of that IFR. The withdrawal of the COVID-19 vaccination IFR may allow for nursing and other personnel unwilling to receive the COVID-19 vaccination to re-enter the workforce for Medicare-certified facilities and increase the pool of hirable talent.
Increased competition for, or a shortage of, nurses or other trained personnel, or general ongoing inflationary pressures may require that we enhance our pay and benefits packages to compete effectively for such personnel. Turnover rates and the magnitude of the shortage of nurses or other trained personnel vary substantially from operation to operation and may adversely affect those operations' quality ratings based on data reported to CMS. In addition, state laws regarding minimum wage increases, such as California’s minimum wage increases for both healthcare and fast-food workers, may intensify competition for unskilled labor in both skilled and unskilled settings. For skilled workers within the skilled care market where we operate, the costs of skilled labor, which are already greater than unskilled labor, could increase further. Similarly, the increased minimum wage of unskilled labor will not only increase the cost of unskilled labor but may also have effects that dissuade workers from training to join the skilled workforce to earn higher wage growth, resulting in a smaller pool of available skilled workers and further increased competition—and higher wages—for them. If we fail to attract and retain qualified and skilled personnel, our ability to conduct our business operations could be harmed.
Annual caps and other cost-reductions for outpatient therapy services may reduce our future revenue and profitability or cause us to incur losses.
As discussed in detail in Item 2., under Government Regulation, sub-heading Part B Rehabilitation Requirements, several government actions have been taken in recent years to try and contain the costs of rehabilitation therapy services provided under Medicare Part B, including the MPPR, institution of annual caps, mandatory medical reviews for annual claims beyond a certain monetary threshold, and a reduction in reimbursement rates. Of specific concern has been CMS efforts to lower Medicare Part B reimbursement rates for outpatient therapy services, which are reduced by 2.83% in the 2025 PFS Final Rule, although the 2026 PFS Proposed Rule represents an effort to reverse this trend and increase payments for provider services. Such actual increases, however, cannot be confirmed until the final rule for the 2026 PFS is issued, which is expected in November or December of 2025. Any future cost-containment measures and ongoing payment changes could have an adverse effect on our revenue.
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The Office of the Inspector General or other regulatory authorities may choose to more closely scrutinize billing practices in areas where we operate or propose to expand, which could result in an increase in regulatory monitoring and oversight, decreased reimbursement rates, or otherwise adversely affect our business, financial condition and results of operations.
As discussed in greater detail in Item 2., under Government Regulation, Civil and Criminal Fraud and Abuse Laws and Enforcement, the OIG regularly conducts investigations regarding certain payment or compliance issues within the healthcare industry. The OIG identified SNF compliance as an issue of concern in its 2021, 2022, 2023, 2024 and 2025 semi-annual reports to Congress. In March of 2025, OIG found that, over a 3-year period, Medicare Part D improperly paid approximately $465 million for drugs that should have been reimbursed under Medicare Part A through its SNF benefits. This issue was also added to the OIG's work plan, with a focus on SNFs' compliance with Medicare Part A billing requirements for drugs that the OIG found were improperly paid by Medicare Part D. In June 2024, the OIG continued to focus on SNFs, adding the SFF Program to its Work Plan. The OIG's January 2023 study regarding SNF emergency preparedness identified the need for further oversight and addition of SNF emergency readiness to the OIG's fall 2023 work plan. 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. Nursing homes were also a topic of discussion in the OIG’s 2023 semi-annual report to Congress, which emphasized the continued protection and oversight of care that nursing facilities provide to residents. Among other things, the OIG recommended attention to the rate of reimbursement for professional services rendered within facilities. The OIG’s reports to Congress have also recommended a reduction in the use of psychotropic drugs in nursing homes and urged CMS to evaluate the appropriateness of psychotropic drug use among residents, including the use of data to identify nursing homes with higher rates of use for potential further scrutiny and action. Based on this information, SNFs in particular are potential targets for more robust scrutiny and examination by regulators. Prior publications and statements by the Biden-Harris Administration have also called for greater scrutiny of SNF facilities. Following the 2024 presidential election, it is not yet known whether the new Presidential Administration will follow the same policies and seek further or escalating scrutiny of SNFs. The SNF PPS FY 2026 did not significantly change any of the previous administration's rules with the exception of the non-enforcement of the Staffing Rule under the OBBB and subsequent changes in HHS priorities, including the abandonment of appeals seeking to defend the rule and promulgating an interim final rule to stop the Rule's staffing ratios from taking effect.
To respond to the local community needs and the shifting of higher acuity patients from the acute care setting to the SNF setting, over time our overall patient mix has consistently shifted to higher acuity and higher-resource utilization patients in most facilities we operate. We also use specialized care-delivery software that assists our caregivers in more accurately capturing and recording activities of daily living services, among other things. These efforts may place us under greater scrutiny with the OIG, CMS, our fiscal intermediaries, recovery audit contractors and others.
State efforts to regulate or deregulate the healthcare services industry or the construction or expansion of healthcare facilities could impair our ability to expand our operations, or could result in increased competition.
Some states require healthcare providers, including SNFs, to obtain prior approval, known as a certificate of need, for: (1) the purchase, construction or expansion of healthcare facilities; (2) capital expenditures exceeding a prescribed amount; or (3) changes in services or bed capacity.
Other states that do not require certificates of need have effectively barred the expansion of existing facilities and the establishment of new ones by placing partial or complete moratoria on the number of new Medicaid beds those states will certify in certain areas or throughout the entire state. Still other states have established such stringent development standards and approval procedures for constructing new healthcare facilities that the construction of new facilities, or the expansion or renovation of existing facilities, may become cost-prohibitive or extremely time-consuming. In addition, some states require the approval of the state Attorney General for acquisition of a facility being operated by a non-profit organization.
Our ability to acquire or construct new facilities or expand or provide new services at existing facilities would be adversely affected if we are unable to obtain the necessary approvals, if there are changes in the standards applicable to those approvals, or if we experience delays and increased expenses associated with obtaining those approvals. We may not be able to obtain licensure, certificate of need approval, Medicaid certification, state Attorney General approval or other necessary approvals for future expansion projects. Conversely, the elimination or reduction of state regulations that limit the construction, expansion or renovation of new or existing facilities could result in increased competition to us or result in overbuilding of facilities in some of our markets. If overbuilding in the skilled nursing industry in the markets in which we operate were to occur, it could reduce the occupancy rates of existing facilities and, in some cases, might reduce the private rates that we charge for our services.
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Newly enacted and proposed legislation in the States where our independent subsidiaries are located may affect our operations in terms of individual litigation and the broader regulatory environment.
A bill in the State of California was signed into law which increases the cap of non-economic damages awarded to plaintiffs who are successful in medical malpractice litigation. The cap increases from $0.25 million to $0.35 million beginning on January 1, 2023, then increases over the following 10 years until the cap reaches a maximum of $0.75 million, with further adjustments for inflation. In wrongful death cases, the cap increases from $0.25 million to $0.5 million on January 1, 2023, with incremental increases over the following 10 years until the cap reaches a maximum of $1.0 million, with adjustments for inflation. Due to California's influence on other states, other jurisdictions where we operate have enacted similar laws (namely Iowa and Nevada) and may enact similar laws in the future. Similar to the potential incentive of increased damages caps, recent Supreme Court decisions may increase public interest in potential claims against SNFs and senior living facilities, particularly pertaining to specific civil rights claims against governmental actors rather than general liability claims against privately owned SNFs such as those operated by our independent subsidiaries. While there may be additional claims and litigation that arise from the Supreme Court's decision that have an adverse impact on our cash flow, it is not expected that the decision will have a significant impact on our business.
Another example, California’s adoption of the Skilled Nursing Facility Ownership and Management Reform Act of 2022, discussed in Item 2., Government Regulation, imposes new requirements for obtaining licenses to operate SNFs. These new requirements may delay or limit the ability to obtain new SNF licenses within that state, whether through acquisition of existing facilities or opening a new facility. This new law's obligations may increase the costs of obtaining licensure, make applications more time-consuming and complex, and may result in civil penalties and other sanctions against our independent subsidiaries in the event they are not compliant with these new licensure application requirements. As a result, this new law may delay or impede growth within California. As with the bill that increases the cap of non-economic damages for medical malpractice litigation, California’s influence on other states may result in this legislation becoming a model for other states and having similar, potentially adverse effects within those jurisdictions as well.
Other new and proposed legislation may impose the same regulatory requirements and limitations inherent in both the proposed legislation in other states and the federally proposed rule requiring disclosure of such information in applications and change-of-ownership disclosures, which may adversely affect our business, operations, and profitability.
Changes to federal and state employment-related laws and regulations could increase our cost of doing business.
Our independent subsidiaries are subject to a variety of federal and state employment-related laws and regulations, including, but not limited to, the U.S. Fair Labor Standards Act that governs such matters as minimum wages, overtime and other working conditions, the ADA and similar state laws that provide civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas, the National Labor Relations Act, regulations of the EEOC, regulations of the Office of Civil Rights, regulations of state attorney generals, family leave mandates and a variety of similar laws enacted by the federal and state governments that govern these and other employment law matters. Changes to federal and state regulations and laws are discussed in more detail in Item 2., under Government Regulation.
The Biden-Harris Administration requested that HHS and CMS study and issue proposed rules regarding care-based careers, including improving access to training, increasing the attractiveness of compensation in care-based positions, and improving the retention and career progression of care workers. The current Presidential Administration, as well as new leadership of HHS or CMS, may discontinue these studies, discontinue ongoing rulemaking activity, and may pursue significantly different policy-setting and rulemaking priorities that do not include any of the Biden-Harris Administration’s priorities. Simultaneously, certain actions taken under the Biden-Harris Administration, such as increased enforcement authority by HHS and CMS, may be retained and utilized by the current Presidential Administration and its new leaders of HHS and CMS. The current Presidential Administration has not clearly supported these priorities, but has not renounced support of them or communicated an affirmative reversal of course from these positions.
Other pending legislation, such as the HCBS Access Act, indicated a legislative priority of providing funding for care-based careers that may affect our pool of desired workers. The OBBB’s allowance for states to seek waivers allowing Medicaid to cover HCBS may also affect our business, and may signal a legislative and administrative preference for care outside of nursing facilities and other institutions, which may be obtained at a lower rate of reimbursement. Due to a change of political party control of both houses of Congress, though, other HCBS-related legislation may have a lower likelihood of passing, even if reintroduced in a subsequent congress. Rising operating costs due to labor shortages, greater compensation and incentives required to attract and retain qualified personnel and higher-than-usual inflation on items including energy, utilities, food and other goods used in our facilities and the costs for transporting these items could increase our cost and decrease our profits.
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The compliance costs associated with these laws and evolving regulations could be substantial. By way of example, all of our independent subsidiaries are required to comply with the ADA, which has separate compliance requirements for “public accommodations” and “commercial properties,” but generally requires that buildings be made accessible to people with disabilities. Compliance with ADA requirements could require removal of access barriers and non-compliance could result in imposition of government fines or an award of damages to private litigants. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons. In addition, federal proposals to introduce a system of mandated health insurance and flexible work time and other similar initiatives could, if implemented, adversely affect our operations. We also may be subject to employee-related claims such as wrongful discharge, discrimination or violation of equal employment law.
Required regulatory approvals could delay or prohibit transfers of our healthcare operations, which could result in periods in which we are unable to receive reimbursement for such properties.
The operations of our independent subsidiaries must be licensed under applicable state law and, depending upon the type of operation, certified or approved as providers under the Medicare and/or Medicaid programs. In the process of acquiring or transferring operating assets, our operations must receive change of ownership approvals from state licensing agencies, Medicare and Medicaid as well as third-party payors. Proposed rules regarding the disclosure of SNF facility ownership, if made effective, may increase the scrutiny placed on companies that operate, directly or indirectly, multiple SNFs, and may subject our licensing and approval process to additional scrutiny or delays. If there are any delays in receiving regulatory approvals from the applicable federal, state or local government agencies, or the inability to receive such approvals, such delays or denials could result in delayed or lost reimbursement related to periods of service prior to the receipt of such approvals, which could negatively impact our cash position.
Compliance with federal and state fair housing, fire, safety and other regulations may require us to make unanticipated expenditures, which could be costly to us.
We must comply with the federal Fair Housing Act and similar state laws, which prohibit us from discriminating against individuals if it would cause such individuals to face barriers in gaining residency in any of our independent subsidiaries. Additionally, the Fair Housing Act and other similar state laws require that we do not advertise our services in a way that may be discriminatory. We may be required, among other things, to change our marketing techniques to comply with these requirements.
In addition, our independent subsidiaries are required to operate in compliance with applicable fire and safety regulations, building codes and other land use regulations and food licensing or certification requirements as they may be adopted by governmental agencies and bodies from time to time. Like other healthcare facilities, our independent SNFs are subject to periodic surveys or inspections by governmental authorities to assess and assure compliance with regulatory requirements. Surveys occur on a regular (often annual or biannual) schedule, and special surveys may result from a specific complaint filed by a patient, a family member or one of our competitors. We may be required to make substantial capital expenditures to comply with these requirements. In some cases, we may be unable to comply with new regulations prior to their effective date exposing us to potential fines or regulatory action.
We depend largely upon reimbursement from third-party payors, and our revenue, financial condition and results of operations could be negatively impacted by any changes in the acuity mix of patients in our independent subsidiaries as well as payor mix and payment methodologies.
Our revenue is affected by the percentage of the patients of our independent subsidiaries who require a high level of skilled nursing and rehabilitative care, whom we refer to as high acuity patients, and by our mix of payment sources. Changes in the acuity level of patients we attract, as well as our payor mix among Medicaid, Medicare, private payors and managed care companies, significantly affect our profitability. Changes to federal law affecting Medicaid funding and availability, including the enactment of the OBBB, may materially affect our business and the operations of our independent subsidiaries. We generally receive higher reimbursement rates for high acuity patients, and payors reimburse us at different rates. For the three and nine months ended September 30, 2025, 69.5% and 69.6% of our revenue was provided by government payors that reimburse us at predetermined rates. If our labor or other operating costs increase, we will be unable to recover such increased costs from government payors. Accordingly, if we fail to maintain our proportion of high acuity patients or if there is any significant increase in the percentage of the patients of our independent subsidiaries for whom we receive Medicaid reimbursement, our results of operations may be adversely affected.
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Initiatives undertaken by major insurers and managed care companies to contain healthcare costs may adversely affect our business. These tactics include contracting with healthcare providers to obtain services on a discounted basis. We believe that this trend will continue and may limit reimbursements for healthcare services. If insurers or managed care companies from whom we receive substantial payments were to reduce the amounts they pay for services and we did not wish to accept such reductions, we may lose patients if we choose not to renew our contracts with these insurers at lower rates. Additionally, trade publications within the healthcare industry have reported on the trend of payors using the No Surprises Act as a means to force re-negotiation of reimbursement rates for providers and facilities, leading to litigation between these providers and/or facilities against payors and it may adversely affect us as well.
As discussed under Item 2., Government Regulation, the Biden-Harris Administration requested HHS and CMS conduct studies to evaluate potential staffing, data reporting, employee compensation and retention, and resident experience regulations that may result in a reduction of our revenue from Medicare and Medicaid. CMS first requested information regarding these priorities in 2022 and subsequently published further requests for information from the public in the Federal Register to aid in studies and anticipated rulemaking. Following the change in Presidential Administration and control of the Senate, both the OBBB and changes in HHS legal priorities, including the abandonment of appeals defending the Staffing Rule and interim rulemaking to stop the Staffing Rule's staffing ratios from taking effect, have resulted in the Staffing Rule being unenforceable at this time and not likely to be pursued in the future. Other rules from the Biden-Harris Administration, such as increased ownership disclosure requirements, however, remain in effect. The identification and pursuit of HHS priorities under the current Presidential Administration may continue to be unpredictable in the future. Certain results of the Biden-Harris Administration’s rulemaking, including enhanced enforcement ability, may be retained under the current Presidential Administration, as signaled by its recent decision to prohibit pre-dispute agreements to arbitrate disputes in SNF admission agreements. We continue to monitor this area and look for public disclosures from the current Presidential Administration and expected heads of HHS and CMS to better anticipate what policy priorities and changes we can expect regarding Medicare and Medicaid reimbursement, including payment models and factors affecting our independent subsidiaries’ reimbursement for the services they provide.
We are subject to litigation that could result in significant legal costs and large settlement amounts or damage awards.
The skilled nursing business involves a significant risk of liability given the age and health of the patients and residents of our independent subsidiaries and the services we provide. The industry has experienced an increased trend in the number and severity of litigation claims, due in part to the number of large verdicts, including large punitive damage awards. These claims are filed based upon a wide variety of claims and theories, including deficiencies under conditions of participation under certain state and federal healthcare programs. Plaintiffs' attorneys have become increasingly more aggressive in their pursuit of claims against healthcare providers, including skilled nursing providers, employing a wide variety of advertising and solicitation activities to generate more claims. The increased caps on damages awarded in such actions, as discussed above, may trigger a larger number of these lawsuits against our independent subsidiaries in California and other states that adopt similar legislation. The defense of lawsuits has in the past, and may in the future, result in significant legal costs, regardless of the outcome. Additionally, increases to the frequency and/or severity of losses from such claims and suits may result in increased liability insurance premiums or a decline in available insurance coverage levels, which could materially and adversely affect our business, financial condition and results of operations. In addition to carrying third-party liability insurance, our captive insurance subsidiary provides professional liability and general liability insurance to various independent subsidiaries. See the risk factor titled “Our self-insurance programs may expose us to significant and unexpected costs and losses.”
We have in the past been subject to class action litigation involving claims of violations of various regulatory requirements and been able to settle these claims without an ongoing material adverse effect on our business. Future claims could be brought that may materially affect our business, financial condition and results of operations. Other claims and suits, including class actions, continue to be filed against us and other companies in our industry. For example, there has been a general increase in the number of wage and hour class action claims filed in several of the jurisdictions where we operate, typically based on alleged failures to permit or properly compensate for meal and rest periods, or failure to pay for time worked. If there were a significant increase in the number of these claims against us or an increase in amounts owing should plaintiffs be successful in their claims, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are subject to potential lawsuits under the FCA and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare or Medicaid) or other payor. Under the qui tam or "whistleblower" provisions of the FCA, a private individual with knowledge of fraud or potential fraud may bring a claim on behalf of the federal government and receive a percentage of the federal government's recovery. Due to these whistleblower incentives, qui tam lawsuits have become more frequent.
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Beyond our skilled nursing business, we engage in numerous ancillary businesses through one or more of our subsidiaries. These ancillary businesses generally support and provide services complementary to our operations, including but not limited to non-emergent ground transportation for patients and residents. Our ancillary businesses may also be the subject of claims, lawsuits, and regulatory oversight that are specific to the particular services they offer. Noncompliance with the laws and regulations that may apply to our ancillary businesses may result in fines, penalties, and civil claims paid by our affected independent subsidiaries. Specific to our non-emergent ground transportation business, the drivers employed by this business may be subject to additional state-specific regulations regarding working time allowed to be spent driving, waiting time, and break or rest periods, and violations of these rules may lead to regulatory fines, penalties, or claims to be paid to individual drivers, in addition to the general employment risks described above.
Our ancillary businesses also are susceptible to general liability claims based on facts and circumstances that are specific to their activities and operations, such as claims for automobile-involved accidents against our non-emergent ground transportation business. The defense of claims and lawsuits relating to our ancillary businesses in the past, and may in the future, result in significant legal costs, regardless of the outcome. As our ancillary businesses grow, the independent subsidiaries may be subject to increased frequency and/or severity of losses from such claims and suits which may result in increased liability insurance premiums and decline in available coverage as described above, which could materially and adversely affect our business, financial condition and results of operations.
In addition, we contract with a variety of landlords, lenders, vendors, suppliers, consultants and other individuals and businesses. These contracts typically contain covenants and default provisions. If the other party to one or more of our contracts were to allege that we have violated the contract terms, we could be subject to civil liabilities which could have a material adverse effect on our financial condition and results of operations.
If litigation is instituted against one or more of our subsidiaries, a plaintiff might attempt to hold us or another subsidiary liable for the alleged wrongdoing of the subsidiary principally targeted by the litigation. If a court in such litigation decided to disregard the corporate form, the resulting judgment could increase our liability and adversely affect our financial condition and results of operations.
Prior to CMS’s most recent action prohibiting binding pre-dispute arbitration provisions contained in admission agreements, Congress repeatedly considered, without passage, a bill that would require, among other things, that agreements to arbitrate nursing home disputes be made after the dispute has arisen rather than before prospective patients move in, to prevent nursing home operators and prospective patients from mutually entering into a pre-admission, pre-dispute arbitration agreement. This bill, known as the Fairness in Nursing Home Arbitration Act, was introduced in the House of Representatives in 2021; the bill and its analogue introduced in the Senate have never made it out of the committees to which they were referred for discussion. The Fairness in Nursing Home Arbitration Act was re-introduced in the House of Representatives on January 29, 2024 and was referred to the Committee on Ways and Means and the Committee on Energy and Commerce. No action was taken in the prior Congress following referral of the bill to those committees.
Our independent subsidiaries have used arbitration agreements where permissible by law, which have generally been favored by the courts, to streamline the dispute resolution process and reduce our exposure to legal fees and excessive jury awards. CMS previously identified these arbitration agreements as an area of focus and issued guidance to state surveyors regarding federal requirements for the use of arbitration agreements in nursing home care, with non-compliance potentially resulting in fines and other sanctions. Absent some judicial or legislative intervention, or other ability to potentially resolve claims without the cost and unpredictability of a jury trial (for example, obtaining a jury trial waiver if and where permitted by state law), our litigation exposure and costs of defense in patient liability actions could increase, our liability insurance premiums could increase, and our business may be adversely affected.
The outcomes of any of these litigation matters are difficult to predict and litigation and other legal claims are subject to inherent uncertainties. Those uncertainties include, but are not limited to, litigation costs and attorneys’ fees, unpredictable judicial or jury decisions and the differing laws and judicial proclivities regarding damage awards among the states in which we operate. A further complication is that even where the possibility of an adverse outcome is remote under traditional legal analysis, juries sometimes substitute their subjective views in place of facts and established legal principles. Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings (possibly resulting in changes in established reserves) could have a material adverse effect on our business, financial condition, and results of operations.
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We conduct regular internal investigations into the care delivery, recordkeeping and billing processes of our independent subsidiaries. These reviews sometimes detect instances of noncompliance which we attempt to correct, which can decrease our revenue.
As an operator of healthcare facilities through our independent subsidiaries, we have a program to aid them in complying with various requirements of federal and private healthcare programs. Our compliance program includes, among other things, (1) policies and procedures modeled after applicable laws, regulations, sub-regulatory guidance and industry practices and customs that govern the clinical, reimbursement and operational aspects of our subsidiaries; (2) training about our compliance process for all of the employees of our independent subsidiaries, our directors and officers, and training about Medicare and Medicaid laws, fraud and abuse prevention, clinical standards and practices, and claim submission and reimbursement policies and procedures for appropriate employees; and (3) internal controls that monitor, among other things, the accuracy of claims, reimbursement submissions, cost reports and source documents, provision of patient care, services, and supplies as required by applicable standards and laws, accuracy of clinical assessment and treatment documentation, and implementation of judicial and regulatory requirements (i.e., background checks, licensing and training).
From time to time our systems and controls highlight potential compliance issues, which we investigate as they arise. Historically, we have initiated, and will continue to do so in the future, internal inquiries into possible recordkeeping and related irregularities at our independent subsidiaries, which were detected by our internal compliance team in the course of its ongoing reviews.
Through these internal inquiries, we have identified potential deficiencies in the assessment of and recordkeeping for small subsets of patients. We have assisted in implementing, targeted improvements in the assessment and recordkeeping practices to make them consistent with the existing standards and policies applicable to our independent subsidiaries. We continue to monitor the measures implemented for effectiveness and perform follow-up reviews to ensure compliance. Consistent with healthcare industry accounting practices, we record any charge for refunded payments against revenue in the period in which the claim adjustment becomes known.
If additional reviews result in identification and quantification of additional amounts to be refunded, we will accrue additional liabilities for claim costs and interest, and repay any amounts due in normal course and within the time permitted by law. Failure to refund overpayments within required time frames (as described in greater detail above) could result in FCA liability and our business, financial condition and results of operations could be materially and adversely affected and our stock price could decline.
The OHCA CMIR has the potential to delay or prevent proposed transactions and require disclosure of confidential information.
The OHCA CMIR process may delay, and potentially ultimately prevent, the closing of certain proposed transactions. If a CMIR results in a negative finding and generates a referral to the California Attorney General, that could result in the parties not being able to conclude the proposed transaction and possibly require the subject facilities to appoint new managers. Any delay or prevention of completing transactions could have adverse effect on the operations of our independent subsidiaries. The risk of an adverse regulatory outcome, competitive harm, or potential legal action will persist until the CMIR is successfully concluded.
The CMIR process also seeks the disclosure of confidential information regarding our independent subsidiaries’ reimbursement rates and financial performance. This information is subject to contractual confidentiality obligations and otherwise proprietary to our business and is likewise a source of competitive advantage in the marketplace. If this information is disclosed to, or otherwise obtained by OHCA, we anticipate that it will be publicly available and could provide competitors with otherwise unavailable data on the financial operations and reimbursement relationships of our independent subsidiaries.
We continue to communicate with and respond to OHCA in connection with the CMIR, but there can be no assurance that there will be a positive resolution.
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We may be unable to complete future asset or business acquisitions at attractive prices or at all, which may adversely affect our revenue; we may also elect to dispose of underperforming or non-strategic independent subsidiaries, which would also decrease our revenue.
To date, our revenue growth has been significantly impacted by our acquisition of new facilities and businesses. Subject to general market conditions and the availability of essential resources and leadership within our company, we continue to seek both single-and multi-facility acquisition and business acquisition opportunities that are consistent with our geographic, financial and operating objectives.
We face competition for the acquisition of facilities and businesses and expect this competition to increase. Based upon factors such as our ability to identify suitable acquisition candidates, future regulations affecting our ability to purchase facilities, the purchase price of the facilities, increasing interest rates for debt-financed purchases, prevailing market conditions, the availability of leadership to manage new facilities and our own willingness to take on new operations, the rate at which we have historically acquired facilities has fluctuated significantly. In the future, we anticipate the rate at which we may acquire facilities will continue to fluctuate, which may affect our revenue.
We have also previously acquired a few operations, which were or have proven to be non-strategic or less desirable, and we may consider disposing of such operations or exchanging them for operations that are more desirable, either because they were included in larger, indivisible groups of operations or under other circumstances. To the extent we dispose of such an operation without simultaneously acquiring an operation in exchange, our revenue may decrease.
We may not be able to successfully integrate acquired assets and businesses into our operations, and we may not achieve the benefits we expect from any of our acquisitions.
We may not be able to successfully or efficiently integrate new acquisitions of assets and businesses with our existing independent subsidiaries, culture and systems. The process of integrating acquisitions into our existing operations may result in unforeseen operating difficulties, divert management's attention from existing operations, or require an unexpected commitment of staff and financial resources, and may ultimately be unsuccessful. Existing operations available for acquisition frequently serve or target different markets than those that we currently serve. We also may determine that renovations of acquired facilities and changes in staff and operating management personnel are necessary to successfully integrate those acquisitions into our existing operations. We may not be able to recover the costs incurred to reposition or renovate newly independent subsidiaries. The financial benefits we expect to realize from many of our acquisitions are largely dependent upon our ability to improve clinical performance, overcome regulatory deficiencies, rehabilitate or improve the reputation of the operations in the community, increase and maintain occupancy, control costs, and in some cases change the patient acuity mix. If we are unable to accomplish any of these objectives at the independent subsidiaries we acquire, we will not realize the anticipated benefits and we may experience lower than anticipated profits, or even losses.
During the nine months ended September 30, 2025, we expanded our operations through a combination of long-term leases and real estate purchases, with the addition of 28 stand-alone skilled nursing operations, five stand-alone senior living operations and one campus operation. This growth has placed and will continue to place significant demands on our current management resources. Our ability to manage our growth effectively and to successfully integrate new acquisitions into our existing business will require us to continue to expand our operational, financial and management information systems and to continue to retain, attract, train, motivate and manage key employees, including facility-level leaders and our local directors of nursing. We may not be successful in attracting qualified individuals necessary for future acquisitions to be successful, and our management team may expend significant time and energy working to attract qualified personnel to manage operations we may acquire in the future. Also, the newly acquired operations may require us to spend significant time improving services that have historically been substandard, and if we are unable to improve such operations quickly enough, we may be subject to litigation and/or loss of licensure or certification. If we are not able to successfully overcome these and other integration challenges, we may not achieve the benefits we expect from any of our acquisitions, and our business may suffer.
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In undertaking acquisitions, we may be adversely impacted by costs, liabilities and regulatory issues that may adversely affect our operations.
In undertaking acquisitions, we also may be adversely impacted by unforeseen liabilities attributable to the prior providers who operated those businesses, against whom we may have little or no recourse. Many operations we have historically acquired were underperforming financially and had clinical and regulatory issues prior to and at the time of acquisition. Even where we have improved independent subsidiaries and patient care, we still may face post-acquisition regulatory issues related to pre-acquisition events. These may include, without limitation, payment recoupment related to our predecessors' prior noncompliance, the imposition of fines, penalties, operational restrictions or special regulatory status. Further, we may incur post-acquisition compliance risk due to the difficulty or impossibility of immediately or quickly bringing non-compliant operations into full compliance. Diligence materials pertaining to acquisition targets, especially the underperforming facilities that often represent the greatest opportunity for return, are often inadequate, inaccurate or impossible to obtain, sometimes requiring us to make acquisition decisions with incomplete information. Despite our due diligence procedures, operations that we have acquired or may acquire in the future may generate unexpectedly low returns, may cause us to incur substantial losses, may require unexpected levels of management time, expenditures or other resources, or may otherwise not meet a risk profile that our investors find acceptable.
In addition, we might encounter unanticipated difficulties and expenditures relating to any of the acquired operations, including contingent liabilities. For example, when we acquire operations, we generally assume the operation's existing Medicare provider number for purposes of billing Medicare for services. If CMS later determines that the prior owner of the operation had received overpayments from Medicare for the period of time during which it ran the operation, or had incurred fines, CMS could hold us liable for repayment of the overpayments or fines. We may be unable to improve every operation that we acquire. In addition, operation of these newly acquired operations may divert management time and attention from other operations and priorities, negatively impact cash flows, result in adverse or unanticipated accounting charges, or otherwise damage other areas of our company if they are not timely and adequately improved.
We also incur regulatory risk in acquiring certain facilities due to the licensing, certification and other regulatory requirements affecting our right to operate the acquired facilities. For example, in order to acquire facilities on a predictable schedule, or to acquire declining operations quickly to prevent further pre-acquisition declines, we frequently acquire such facilities prior to receiving license approval or provider certification. We operate such facilities as the interim manager for the outgoing licensee, assuming financial responsibility, among other obligations for the facility. To the extent that we may be unable or delayed in obtaining a license, we may need to operate the facility under a management agreement from the prior operator. Any inability in obtaining consent from the prior operator of a target acquisition to utilizing its license in this manner could impact our ability to acquire additional facilities. Further, anticipated future regulations may cause delays in acquiring the required licenses and certifications, if it is possible to do so at all. If we were subsequently denied licensure or certification for any reason, we might not realize the expected benefits of the acquisition and would likely incur unanticipated costs and other challenges which could cause our business to suffer.
If we do not achieve or maintain competitive quality of care ratings from CMS or private organizations engaged in similar monitoring activities, our business may be negatively affected.
As discussed in Item 2., under Government Regulation, CMS provides comparative public data, rating every SNF operating in each state based upon quality-of-care indicators. Certain private organizations engage in similar monitoring and ranking activities. CMS’s system is the Five-Star Quality Rating System which gives each nursing home a rating of between one and five stars in various categories, with five-star ratings harder to obtain over time. The ratings are available on a consumer-facing website, Nursing Home Compare. In cases of acquisitions, the previous operator's clinical ratings are included in our overall Five-Star Quality Rating and the rating may not reflect the improvements we were able to make until it is recalculated. Based on CMS's guidance and regulations, we expect more data to be collected by CMS and reported on the Nursing Home Compare website in the future. Additionally, CMS's ownership transparency final rule, which requires the disclosure of SNF ownership and affiliated parties, will ultimately provide for the public disclosure of information reported to CMS under that rule starting in 2026 when revalidation of enrollment is required. Other states, including Iowa and California, have adopted similar statutes and regulations requiring the disclosure of this information. The publicly available information disclosed as a result of these laws and rules may result in potential residents perceiving our highly rated facilities to be less desirable if they share ownership with lower rated facilities, even if the lower rated facility is a new acquisition or has a lower score for reasons beyond our control.
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CMS continues to increase quality measure thresholds, which are regularly increased every six months, making it more difficult to achieve upward and five-star ratings. CMS increased its quality measure thresholds in 2022, making it more difficult for facilities to obtain or maintain four- and five-star ratings. Some facilities may see a decline in their overall five-star rating absent any new inspection information, and as a result the five-star ratings of our independent subsidiaries may decline even as their quality measures remain unchanged or improve. Additionally, on the Nursing Home Compare website, CMS began displaying a consumer alert icon next to nursing homes that have been cited on inspection reports for incidents of abuse, neglect, or exploitation. In 2022, CMS updated the scoring measures used for SNFs to include six dimensions of staffing and turnover.
In July 2023, CMS revised the nursing-home level exclusion criteria used on the administrator turnover measure, adding information regarding its calculation of the staff turnover measure and publishing an updated ratings table, which identifies the points needed for each nursing facility to obtain certain star ratings within its state. This change made it more competitive to obtain a five-star rating, and more difficult to maintain such a rating once achieved. Only 10% of nursing facilities can receive a five-star rating in the state where they operate. These changes also increase the pressure on our independent subsidiaries to obtain a smaller number of available five-star ratings, as lower ratings may make it more difficult to attract prospective residents to receive our services.
CMS announced that it is changing its staffing rating methodology to give the lowest possible score to and penalize providers that fail to provide staffing data or provide erroneous staffing data. These changes risk our independent subsidiaries’ facilities being incorrectly awarded a lower star rating, or prevented from attaining a deserved higher ranking due to favorable data not being reflected in CMS’s five-star ratings due to the freeze or replacement of certain measures. These lower ratings may cause potential residents to evaluate these independent subsidiaries’ facilities as less desirable, and result in fewer admissions and thus reduced revenue.
In July 2024, CMS changed the staffing case-mix adjustment methodology to a model based on PDPM. The Nursing Home Compare website has begun posting staffing level measures that use this methodology. CMS will revise the staffing rating thresholds to maintain the same distribution of points for staffing measures that will be affected by this freeze and replacement. Further, CMS will penalize SNFs that submit erroneous data, or fail to submit data, by awarding them the lowest possible rating on that measure. We may be significantly affected if any of our independent subsidiaries fail to submit information for the MDS in 2024, or if CMS deems their MDS submissions to be erroneous. In addition to the uncertainty created by future changes to CMS’s five-star ratings that currently are unknown, the potential negative consequences of freezing unfavorable data may adversely affect our star rating and negatively impact our ability to attract residents.
In June 2025, CMS announced that from July 2025 onward, it will only incorporate the two most recent surveys for Nursing Home Care Compare and the Five Star Quality Rating system. In addition, CMS changed certain weight factors to scores under such survey programs. These changes have the potential to affect the sample of data evaluated under such surveys which could negatively impact SNFs with more recent compliance issues.
As of July 30, 2025, the Nursing Home Compare updates have been temporarily paused until October 2025 due to CMS's transition to a cloud-based system for survey data. During this pause, CMS indicated it will validate date integrity and engage in verification of reporting information for meeting quality standards. This impacts existing viewpoint of SNFs because there is no opportunity to provide new data to update scores. Further it increases the chance of audit by CMS if there are potential findings of data integrity or verification issues.
Providing quality patient care is the cornerstone of our business. We believe that hospitals, physicians and other referral sources refer patients to us in large part because of our reputation for delivering quality care. If we should fail to achieve our internal rating goals or fail to exceed the national average rating on the Five-Star Quality Rating System, including due to nursing and administrative staffing and turnover, or have facilities displaying a consumer alert icon for incidents of abuse, neglect, or exploitation, it may affect our ability to generate referrals, which could have a material adverse effect upon our business and consolidated financial condition, results of operations and cash flows.
If we are unable to obtain insurance, or if insurance becomes more costly for us to obtain, our business may be adversely affected.
It may become more difficult and costly for us to obtain coverage for resident care liabilities and other risks, including property, automobile and casualty insurance. For example, the following circumstances may adversely affect our ability to obtain insurance at favorable rates:
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•we experience higher-than-expected professional liability, property and casualty, or other types of claims or losses;
•a limitation or inability to require arbitration of disputes increases legal costs, exposure, and the unpredictability of jury decisions;
•we receive survey deficiencies or citations of higher-than-normal scope or severity;
•we acquire especially troubled operations or facilities that present unattractive risks to current or prospective insurers;
•insurers choose to stop operating or offering policies in certain states due to changes in economic conditions or laws;
•insurers tighten underwriting standards applicable to us or our industry; or
•insurers or reinsurers are unable or unwilling to insure us or the industry at historical premiums and coverage levels.
If any of these potential circumstances were to occur, our insurance carriers may cancel or not renew our policies, or require us to significantly increase our self-insured retention levels or pay substantially higher premiums for the same or reduced coverage for insurance, including workers compensation, property and casualty, automobile, employment practices liability, directors and officers liability, employee healthcare and general and professional liability coverages.
In some states, the law prohibits or limits insurance coverage for the risk of punitive damages arising from professional liability and general liability claims or litigation. Other states where we operate have experienced a withdrawal of insurers from the marketplace due to prior losses, or are at risk of insurers leaving the market due to changes in the law that make it difficult for those insurers to operate within the state. Coverage for punitive damages is also excluded under some insurance policies. As a result, we may be liable for punitive damage awards in these states that either are not covered or are in excess of our insurance policy limits. Claims against us, regardless of their merit or eventual outcome, could also inhibit our ability to attract patients or expand our business and could require our management to devote time to matters unrelated to the day-to-day operation of our business.
With few exceptions, general and professional, workers compensation and employee health insurance costs have also increased markedly in recent years and are expected to increase in the future. To partially offset these increases, we have increased the amounts of our self-insured retention and deductibles in connection with general and professional liability claims. We also have implemented a self-insurance program for workers compensation in all states, and elected non-subscriber status for workers compensation in Texas. Due to the nature of our business and the residents we serve, including the risk of claims from residents as well as potential governmental action, it may be difficult to complete the underwriting process and obtain insurance at commercially reasonable rates. If we are unable to obtain insurance, or if insurance becomes more costly for us to obtain, or if the coverage levels we can economically obtain decline, our business may be adversely affected.
Our self-insurance programs may expose us to significant and unexpected costs and losses.
We maintain general and professional liability insurance and workers compensation insurance through a wholly-owned captive insurance subsidiary to insure our self-insurance reimbursements and deductibles as part of a continually evolving overall risk management strategy. We establish the insurance loss reserves based on an estimation process that uses information obtained from both company-specific and industry data. The estimation process requires us to continuously monitor and evaluate the life cycle of the claims. Using data obtained from this monitoring and our assumptions about emerging trends, we, along with an independent actuary, develop information about the size of ultimate claims based on our historical experience and other available industry information. The most significant assumptions used in the estimation process include determining the trend in costs, the expected cost of claims incurred but not reported and the expected costs to settle or pay damages with respect to unpaid claims. It is possible, however, that the actual liabilities may exceed our estimates of loss. We may also experience an unexpectedly large number of successful claims or claims that result in costs or liability significantly in excess of our projections. These significant and unpredictable claims may increase in number, frequency, and amount of loss due to not being able to predictably and reliably arbitrate these disputes with our independent subsidiaries. For these and other reasons, our self-insurance reserves could prove to be inadequate, resulting in liabilities in excess of our available insurance and self-insurance. If a successful claim is made against us and it is not covered by our insurance or exceeds the insurance policy limits, our business may be negatively and materially impacted.
Further, because our self-insurance reimbursements under our general and professional liability and workers compensation programs applies on a per claim basis, there is no limit to the maximum number of claims or the total amount for which we could incur liability in any policy period.
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We also self-insure our employee health benefits. With respect to our health benefits self-insurance, our reserves and premiums are computed based on a mix of company specific and general industry data that is not specific to our own company. Even with a combination of limited company-specific loss data and general industry data, our loss reserves are based on actuarial estimates that may not correlate to actual loss experience in the future. Therefore, our reserves may prove to be insufficient and we may be exposed to significant and unexpected losses.
The geographic concentration of our independent subsidiaries could leave us vulnerable to an economic downturn, regulatory changes or acts of nature in those areas.
Our independent subsidiaries located in Arizona, California, and Texas account for the majority of our total revenue. As a result of this concentration, the conditions of local economies and real estate markets, changes in governmental rules, presence and participation of insurers, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our revenue, costs and results of operations. Moreover, since over 24% of our independent subsidiaries are located in California, we are particularly susceptible to revenue loss, cost increase or damage caused by natural disasters such as electrical power shortages, fires, earthquakes or mudslides, or increased liabilities that may arise from regulations as discussed within Item 2., under Government Regulation.
In addition, our independent subsidiaries in certain states are more susceptible to revenue loss, cost increases or damage caused by natural disasters including hurricanes, fires, tornadoes and flooding. These acts of nature may cause disruption to us, the employees of our independent subsidiaries, which could have an adverse impact on the patients of our independent subsidiaries and our business. In order to provide care for the patients of our independent subsidiaries, we are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to our independent subsidiaries, and the availability of employees to provide services. If the delivery of goods or the ability of employees to reach our independent subsidiaries were interrupted in any material respect due to a natural disaster or other reasons, it would have a significant impact on our independent subsidiaries and our business. Furthermore, the impact, or impending threat, of a natural disaster may require that we evacuate one or more facilities, which would be costly and would involve risks, including potentially fatal risks, for the patients. The impact of disasters and similar events is inherently uncertain. Such events could harm the patients and employees of our independent subsidiaries, severely damage or destroy one or more of our independent subsidiaries, harm our business, reputation and financial performance, or otherwise cause our business to suffer in ways that we currently cannot predict.
The actions of a national labor union that has pursued a negative publicity campaign criticizing our business in the past may adversely affect our revenue and our profitability.
We continue to maintain our right to inform the employees of our independent subsidiaries about our views of the potential impact of unionization upon the workplace generally and upon individual employees. Historically, the staff at our independent subsidiaries that have been approached to unionize have uniformly rejected union organizing efforts. Previous rulemaking under the Biden-Harris Administration and previously proposed legislation such as the HCBS Access Act, which increase resources for care-based jobs, may make such positions more lucrative and desirable in the future, and therefore more desirable for unions to organize these workers into their membership. The current Presidential Administration may reverse some of these orders, may impact significant changes in HHS and CMS policy and rulemaking, and may reduce the likelihood of successful legislation that seeks to provide more resources to creating pathways to care-based careers. This change may also affect the favorability of unionization efforts before the Department of Labor. If employees successfully decide to unionize, our cost of doing business could increase, and we could experience contract delays, difficulty in adapting to a changing regulatory and economic environment, cultural conflicts between unionized and non-unionized employees, strikes and work stoppages, and we may conclude that affected facilities or operations would be uneconomical to continue operating.
Because we lease the majority of the facilities operated by our independent subsidiaries, we are subject to risks associated with leased real property, including risks relating to lease termination, lease extensions and special charges, any of which could adversely affect our business, financial position or results of operations.
As of September 30, 2025, our independent subsidiaries operated 249 of our 361 facilities under long term lease arrangements. Most of our leases are triple-net leases, which means that, in addition to rent, we are required to pay for the costs related to the property (including property taxes, insurance, and maintenance and repair costs). We are responsible for paying these costs notwithstanding the fact that some of the benefits associated with paying these costs accrue to the landlords as owners of the associated facilities.
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Each lease provides that the landlord may terminate the lease for a variety of reasons, including the default in any payment of rent, taxes or other payment obligations or the breach of any other covenant or agreement in the lease. Termination of a lease could result in a default under our debt agreements and could adversely affect our business, financial position or results of operations. There can be no assurance that we will be able to comply with all of our obligations under the leases in the future.
Failure to generate sufficient cash flow to cover required payments or meet operating covenants under our long-term debt, mortgages and long-term operating leases could result in defaults under such agreements and cross-defaults under other debt, mortgage or operating lease arrangements, which could harm our independent subsidiaries and cause us to lose facilities or experience foreclosures.
Our Credit Facility has a borrowing capacity of up to $600.0 million in aggregate principal amount. As of September 30, 2025 and through the filing date of this report, we had no outstanding borrowings under our Credit Facility. Twenty-three of our subsidiaries have mortgage loans insured with the Department of Housing and Urban Development (HUD) for an aggregate amount of $144.3 million, which subjects these subsidiaries to HUD oversight and periodic inspections. The terms of the mortgage loans range from 25- to 35-years. We also have one outstanding promissory note with an aggregate principal amount of approximately $1.1 million as of September 30, 2025. The term of the note is 12 years.
In addition, we had $3.0 billion of future operating lease obligations as of September 30, 2025. We intend to continue financing our independent subsidiaries through mortgage financing, long-term operating leases and other types of financing, including borrowings under our lines of credit and future credit facilities we may obtain.
We may not generate sufficient cash flow from operations to cover required interest, principal and lease payments. In addition, our outstanding Credit Facility and mortgage loans contain restrictive covenants and require us to maintain or satisfy specified coverage tests on a consolidated basis and on a facility or facilities basis. These restrictions and operating covenants include, among other things, requirements with respect to occupancy, debt service coverage, project yield, net leverage ratios, minimum interest coverage ratios and minimum asset coverage ratios. These restrictions may interfere with our ability to obtain additional advances under our Credit Facility or to obtain new financing or to engage in other business activities, which may inhibit our ability to grow our business and increase revenue.
From time to time, the financial performance of one or more of our mortgaged facilities may not comply with the required operating covenants under the terms of the mortgage. Any non-payment, noncompliance or other default under our financing arrangements could, subject to cure provisions, cause the lender to foreclose upon the facility or facilities securing such indebtedness or, in the case of a lease, cause the lessor to terminate the lease, each with a consequent loss of revenue and asset value to us or a loss of property. Furthermore, in many cases, indebtedness is secured by both a mortgage on one or more facilities, and a guaranty by us. In the event of a default under one of these scenarios, the lender could avoid judicial procedures required to foreclose on real property by declaring all amounts outstanding under the guaranty immediately due and payable, and requiring us to fulfill our obligations to make such payments. If any of these scenarios were to occur, our financial condition would be adversely affected. For tax purposes, a foreclosure on any of our properties would be treated as a sale of the property for a price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which would negatively impact our earnings and cash position. Further, because our mortgages and operating leases generally contain cross-default and cross-collateralization provisions, a default by us related to one facility could affect a significant number of other facilities and their corresponding financing arrangements and operating leases.
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Because our term loans, promissory note, bonds, mortgages and lease obligations are fixed expenses and secured by specific assets, and because our revolving loan obligations are secured by virtually all of our assets, if reimbursement rates, patient acuity mix or occupancy levels decline, or if for any reason we are unable to meet our loan or lease obligations, we may not be able to cover our costs and some or all of our assets may become at risk. Our ability to make payments of principal and interest on our indebtedness and to make lease payments on our operating leases depends upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our independent subsidiaries, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our debt or to make lease payments on our operating leases, we may be required, among other things, to seek additional financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selected assets, reduce or delay planned capital expenditures or delay or abandon desirable acquisitions. Such measures might not be sufficient to enable us to service our debt or to make lease payments on our operating leases. The failure to make required payments on our debt or operating leases or the delay or abandonment of our planned growth strategy could result in an adverse effect on our future ability to generate revenue and sustain profitability. In addition, any such financing, refinancing or sale of assets might not be available on terms that are economically favorable to us, or at all.
A housing downturn could decrease demand for senior living services.
Seniors often use the proceeds of home sales to fund their admission to senior living facilities. A downturn in the housing markets, including reductions in sales prices caused by increasing mortgage interest rates, economic uncertainty, recession, or a reduction in activity in the market for residential real estate, could adversely affect seniors’ ability to afford our resident fees and entrance fees. Relatedly, a limitation of the amount of home equity that may be exempt from evaluating potential residents’ eligibility for Medicaid long-term care benefits may adversely affect the availability of our services for residents and the payer mix for our independent subsidiaries. If national or local housing markets enter a persistent decline, our occupancy rates, revenues, results of operations and cash flow could be negatively impacted.
As we continue to acquire and lease real estate assets, we may not be successful in identifying and consummating these transactions.
As of September 30, 2025, we lease 36 of our properties to third-party operators. In the future, we might expand our leasing property portfolio to additional tenants. We have very limited control over the success or failure of our tenants’ and operators’ businesses and, at any time, a tenant or operator may experience a downturn in its business that weakens its financial condition. If that happens, the tenant or operator may fail to make its payments to us when due. Although our lease agreements give us the right to exercise certain remedies in the event of default on the obligations owing to us, we may determine not to do so if we believe that enforcement of our rights would be more detrimental to our business than seeking alternative approaches.
An important part of our business strategy is to continue to expand and diversify our real estate portfolio through accretive acquisition and investment opportunities in healthcare properties. Our execution of this strategy by successfully identifying, securing and consummating beneficial transactions is made more challenging by increased competition and can be affected by many factors, including our relationships with current and prospective tenants, our ability to obtain debt and equity capital at costs comparable to or better than our competitors and our ability to negotiate favorable terms with property owners seeking to sell and other contractual counterparties. Our competitors for these opportunities include healthcare REITs, real estate partnerships, healthcare providers, healthcare lenders and other investors, including developers, banks, insurance companies, pension funds, government-sponsored entities and private equity firms, some of whom may have greater financial resources and lower costs of capital than we do. Potential regulations may affect the ability of these entities, as well as ourselves, to compete for these opportunities or enter into transactions for real estate related to our business. If we are unsuccessful at identifying and capitalizing on investment or acquisition opportunities, our growth and profitability in our real estate investment portfolio may be adversely affected.
Investments in and acquisitions of healthcare properties entail risks associated with real estate investments generally, including risks that the investment will not achieve expected returns, that the cost estimates for necessary property improvements will prove inaccurate or that the tenant or operator will fail to meet performance expectations. Income from properties and yields from investments in our properties may be affected by many factors, including changes in governmental regulation (such as licensing and government payment), general or local economic conditions (such as fluctuations in interest rates, senior savings, and employment conditions), the available local supply of and demand for improved real estate, a reduction in rental income as the result of an inability to maintain occupancy levels, natural disasters (such as hurricanes, earthquakes and floods) or similar factors. Furthermore, healthcare properties are often highly customized, and the development or redevelopment of such properties may require costly tenant-specific improvements. As a result, we cannot assure you that we will achieve the economic benefit we expect from acquisition or investment opportunities.
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As we expand our presence in other relevant healthcare industries, we would become subject to risks in a market in which we have limited experience.
The majority of our independent subsidiaries have historically been SNFs. As we expand our presence in other relevant healthcare industries, our existing overall business model will continue to change and expose our company to risks in markets in which we have limited experience, such as the Eliminating Kickbacks in Recovery Act and other state laws that are not as well-developed in regulation and decisional authority as their federal equivalents. We expect that we will have to adjust certain elements of our existing business model, which could have an adverse effect on our business.
If our referral sources fail to view us as an attractive skilled nursing provider, or if our referral sources otherwise refer fewer patients, our patient base may decrease.
We rely significantly on appropriate referrals from hospitals, physicians, and other healthcare providers in the communities in which we deliver our services to attract appropriate residents and patients to our independent subsidiaries. Our referral sources are not obligated to refer business to us and may refer business to other healthcare providers. We believe many of our referral sources refer business to us as a result of the quality of our patient care and our efforts to establish and build a relationship with our referral sources. If we lose, or fail to maintain, existing relationships with our referral resources, fail to develop new relationships, or if we are perceived by our referral sources as not providing high quality patient care, our occupancy rate and the quality of our patient mix could suffer. In addition, if any of our referral sources have a reduction in patients whom they can refer due to a decrease in their business, our occupancy rate and the quality of our patient mix could suffer.
We may need additional capital to fund our independent subsidiaries and finance our growth, and we may not be able to obtain it on terms acceptable to us, or at all, which may limit our ability to grow.
Our ability to maintain and enhance our independent subsidiaries and equipment in a suitable condition to meet regulatory standards, operate efficiently and remain competitive in our markets requires us to commit substantial resources to continued investment in our independent subsidiaries and equipment. We are sometimes more aggressive than our competitors in capital spending to address issues that arise in connection with aging and obsolete facilities and equipment. In addition, continued expansion of our business through the acquisition of existing facilities, expansion of our existing facilities and construction of new facilities may require additional capital, particularly if we were to accelerate our acquisition and expansion plans. Financing may not be available to us or may be available to us only on terms that are not favorable, including being subject to interest rates that are higher than those incurred in the recent past. In addition, some of our outstanding indebtedness and long-term leases restrict, among other things, our ability to incur additional debt. If we are unable to raise additional funds or obtain additional funds on terms acceptable to us, we may have to delay or abandon some or all of our growth strategies. Further, if additional funds are raised through the issuance of additional equity securities, the percentage ownership of our stockholders would be diluted. Any newly issued equity securities may have rights, preferences or privileges senior to those of our common stock.
Delays in reimbursement may cause liquidity problems.
If we experience problems with our billing information systems or if issues arise with Medicare, Medicaid or other payors, we may encounter delays in our payment cycle. The changes enacted in the OBBB may impose further strain and limitation of funds available through the Medicaid programs in the states where our independent subsidiaries operate. From time to time, we have experienced such delays as a result of government payors instituting planned reimbursement delays for budget balancing purposes or as a result of prepayment reviews.
Some states in which we operate are operating with budget deficits or could have budget deficits in the future, which may delay reimbursement in a manner that would adversely affect our liquidity. In addition, from time to time, procedural issues require us to resubmit or appeal claims before payment is remitted, which contributes to our aged receivables. Unanticipated delays in receiving reimbursement from state programs or commercial payors due to changes in their policies or billing or audit procedures may adversely impact our liquidity and working capital.
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The continued use and growth of managed care organizations (MCOs) may contribute to delays or reductions in our reimbursement, including Managed Medicaid.
In 41 states, including some of the largest where we operate, state Medicaid benefits are administered through MCOs. Some states seek to direct more of their Medicaid participation to these MCOs in the future as a measure to combat fraud and abuse in the Medicaid system. Typically, these MCOs manage commercial health and federal Medicare Advantage benefits under a managed care contract. Nationally, more than two-thirds of all Medicaid beneficiaries receive most or all of their care from MCOs. MCOs may be more aggressive than state Medicaid and federal Medicare agencies in denying claims or seeking recoupment of payments so that their services under these managed contracts are profitable. Additionally, restrictions on the availability and utilization of Medicaid funds under the OBBB, may result in MCOs becoming more aggressive in the denial of claims to preserve limited Medicaid funds. The additional steps created by the use of MCOs in disbursement of funds creates more risk of delayed, reduced, or recouped payments for our independent subsidiaries, and additional avenues for risks that include fines and other sanctions, including suspension or exclusion from participation in various governmental programs.
Compliance with the regulations of the Department of Housing and Urban Development may require us to make unanticipated expenditures which could increase our costs.
Twenty-three of our independent subsidiaries are currently subject to regulatory agreements with HUD that give the Commissioner of HUD broad authority to require us to be replaced as the operator of those facilities in the event that the Commissioner determines there are operational deficiencies at such facilities under HUD regulations. Compliance with HUD's requirements can often be difficult because these requirements are not always consistent with the requirements of other federal and state agencies. Appealing a failed inspection can be costly and time-consuming and, if we do not successfully remediate the failed inspection, we could be precluded from obtaining HUD financing in the future or we may encounter limitations or prohibitions on our operation of HUD-insured facilities.
If we fail to safeguard the monies held in our patient trust funds, we will be required to reimburse such monies, and we may be subject to citations, fines and penalties.
Each of our independent subsidiaries is required by federal law to maintain a patient trust fund to safeguard certain assets of their residents and patients. If any money held in a patient trust fund is misappropriated, we are required to reimburse the patient trust fund for the amount of money that was misappropriated. If any monies held in our patient trust funds are misappropriated in the future and are unrecoverable, we will be required to reimburse such monies, and we may be subject to citations, fines and penalties pursuant to federal and state laws.
We are a holding company with no operations and rely upon our multiple independent subsidiaries to provide us with the funds necessary to meet our financial obligations. Liabilities of any one or more of our subsidiaries could be imposed upon us or our other subsidiaries.
We are a holding company with no direct operating assets, employees or revenue. Each of our independent subsidiaries is operated through a separate, wholly-owned, independent subsidiary, which has its own management, employees and assets. Our principal assets are the equity interests we directly or indirectly hold in our multiple operating and real estate holding subsidiaries. As a result, we are dependent upon distributions from our subsidiaries to generate the funds necessary to meet our financial obligations and pay dividends. Our subsidiaries are legally distinct from us and have no obligation to make funds available to us. The ability of our subsidiaries to make distributions to us will depend substantially on their respective operating results and will be subject to restrictions under, among other things, the laws of their jurisdiction of organization, which may limit the amount of funds available for distribution to investors or stockholders, agreements of those subsidiaries, the terms of our financing arrangements and the terms of any future financing arrangements of our subsidiaries.
Our implementation of a new enterprise resource planning (ERP) system may adversely affect our business and results of operations or the effectiveness of our internal controls over financial reporting.
We are currently implementing a new ERP system designed to unify our existing processes, enhance access to real-time operational data, and ensure we are fully equipped to support future growth. This implementation involves significant complexity, including data migration, system integration, process redesign, and requires significant resources and changes to business and financial processes. Additionally, the implementation carries risks such as the disruption of our operations which may adversely impact our financial reporting and internal controls. Moreover, there is no assurance that this new ERP and other aspects of this process, once implemented, will meet our current or future business needs or will operate as intended.
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Certain directors who serve on our Board of Directors also serve as directors of Pennant, and ownership of shares of Pennant common stock by our directors and executive officers may create, or appear to create, conflicts of interest.
Certain of our directors who serve on our Board of Directors also serve on the board of directors of Pennant. This may create, or appear to create, conflicts of interest when our, or Pennant's management and directors face decisions that could have different implications for us and Pennant, including the resolution of any dispute regarding the terms of the agreements governing the spin-off transaction and the relationship between us and Pennant after the spin-off transaction or any other commercial agreements entered into in the future between us and Pennant and the allocation of such directors’ time between us and Pennant.
All of our executive officers and some of our non-employee directors own shares of the common stock of Pennant. The continued ownership of such common stock by our directors and executive officers following the spin-off creates, or may create, the appearance of a conflict of interest when these directors and executive officers are faced with decisions that could have different implications for us and Pennant.
If Standard Bearer fails to remain qualified as a REIT, it will be subject to U.S. federal income tax as a regular corporation and could face substantial tax liability.
Standard Bearer currently operates, and intends to continue to operate, in a manner that allows it to qualify to be taxed as a REIT for U.S. federal income tax purposes. If Standard Bearer fails to remain qualified to be taxed as a REIT in any year, it would be subject to U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and dividends paid to its shareholders would not be deductible by it in computing its taxable income. Any resulting corporate liability could be substantial and would reduce the amount of cash available for distribution to its shareholders. Unless it was entitled to relief under certain Code provisions, it also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which it failed to qualify to be taxed as a REIT.
Legislative or other actions affecting REITs could have a negative effect on Standard Bearer.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury (Treasury). Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect Standard Bearer's investors or Standard Bearer. We cannot predict how changes in the tax laws, including any tax reform called for by the current presidential administration, might affect Standard Bearer or its investors. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect its ability to qualify to be taxed as a REIT or the U.S. federal income tax consequences to Standard Bearer or its investors of such qualification. Changes to the U.S. federal tax laws and interpretations thereof, could adversely affect an investment in our stock. Additionally, REIT's that are related to our operation will likely be subject to the disclosure requirements of CMS's ownership transparency final rule (and analogous state rules), and may subject these REITs to additional public scrutiny.
No prediction can be made regarding whether new legislation or regulation (including new tax measures) will be enacted by legislative bodies or governmental agencies, nor can we predict what consequences would result from this legislation or regulation. Accordingly, no assurance can be given that the currently anticipated tax treatment of an investment will not be modified by legislative, judicial or administrative changes, possibly with retroactive effect.
Even if Standard Bearer remains qualified as a REIT, it may face other tax liabilities that reduce its cash flow.
Even if Standard Bearer remain qualified for taxation as a REIT, it may be subject to certain U.S. federal, state, and local taxes on its income and assets, including taxes on any undistributed income and state or local income, property and transfer taxes. For example, Standard Bearer may hold some of its assets or conduct certain of its activities through one or more taxable REIT subsidiaries or other subsidiary corporations that will be subject to U.S. federal, state, and local corporate-level income taxes as regular C corporations. In addition, it may incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s-length basis. Any of these taxes would decrease cash available for distribution to its shareholders.
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Failure to comply with existing environmental laws could result in increased expenditures, litigation and potential loss to our business and in our asset value.
Our independent subsidiaries are subject to regulations under various federal, state and local environmental laws, primarily those relating to the handling, storage, transportation, treatment and disposal of medical waste; the identification and warning of the presence of asbestos-containing materials in buildings, as well as the encapsulation or removal of such materials; and the presence of other substances in the indoor environment.
Our independent subsidiaries generate infectious or other hazardous medical waste due to the illness or physical condition of the patients. Each of our independent subsidiaries has an agreement with a waste management company for the proper disposal of all infectious medical waste, but the use of a waste management company does not immunize us from alleged violations of such laws even if carried out by a third party, nor does it immunize us from third-party claims for the cost to cleanup disposal sites at which such wastes have been disposed.
Some of the independently operated facilities we lease, own or may acquire may have asbestos-containing materials. Federal regulations require building owners and those exercising control over a building's management to identify and warn their employees and other employers operating in the building of potential hazards posed by workplace exposure to installed asbestos-containing materials and known or suspected asbestos-containing materials in their buildings. Significant fines can be assessed for violation of these regulations. Building owners and those exercising control over a building's management may be subject to an increased risk of personal injury lawsuits. Federal, state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and disposal of asbestos-containing materials and potential asbestos-containing materials when such materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. Such laws may impose liability for improper handling or a release into the environment of asbestos containing materials and potential asbestos-containing materials and may provide for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with asbestos-containing materials and potential asbestos-containing materials.
The presence of mold, lead-based paint, underground storage tanks, contaminants in drinking water, radon and/or other substances at our independent subsidiaries may lead to the incurrence of costs for remediation, mitigation or the implementation of an operations and maintenance plan and may result in third party litigation for personal injury or property damage. If we fail to comply with applicable environmental laws, we will face increased expenditures in terms of fines and remediation of the underlying problems, potential litigation relating to exposure to such materials, and a potential decrease in value to our business and in the value of our underlying assets.
Risks Related to Ownership of our Common Stock
We may not be able to pay or maintain dividends and the failure to do so would adversely affect our stock price.
Our ability to pay and maintain cash dividends is based on many factors, including our ability to make and finance acquisitions, our ability to negotiate favorable lease and other contractual terms, anticipated operating cost levels, the level of demand for occupancy at our facilities, the rates we charge and actual results that may vary substantially from estimates. Some of the factors are beyond our control and a change in any such factor could affect our ability to pay or maintain dividends. The Credit Facility restricts our ability to pay dividends to stockholders if we receive notice that we are in default under the agreement. The failure to pay or maintain dividends could adversely affect our stock price.
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.
Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that may enable our Board of Directors to resist a change in control. These provisions may discourage, delay or prevent a change in the ownership of our company or a change in our management, even if doing so might be beneficial to our stockholders. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. Such provisions set forth in our amended and restated certificate of incorporation or our amended and restated bylaws include:
•our Board of Directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;
•advance notice requirements for stockholders to nominate individuals to serve on our Board of Directors or to submit proposals that can be acted upon at stockholder meetings;
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•our Board of Directors is classified so not all members of our board are elected at one time, which may make it more difficult for a person who acquires control of a majority of our outstanding voting stock to replace our directors;
•stockholder action by written consent is limited;
•special meetings of the stockholders are permitted to be called only by the chairman of our Board of Directors, our chief executive officer or by a majority of our Board of Directors;
•stockholders are not permitted to cumulate their votes for the election of directors;
•newly created directorships resulting from an increase in the authorized number of directors or vacancies on our Board of Directors are filled only by majority vote of the remaining directors;
•our Board of Directors is expressly authorized to make, alter or repeal our bylaws; and
•stockholders are permitted to amend our bylaws only upon receiving the affirmative vote of at least a majority of our outstanding common stock.
We are also subject to the anti-takeover provisions of Section 203 of the General Corporation Law of the State of Delaware. Under these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three years without special approval, which could discourage a third-party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203, “interested stockholder” means, generally, someone owning more than 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203.
These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could discourage acquisition proposals and make it more difficult or expensive for stockholders or potential acquirers to obtain control of our Board of Directors or initiate actions that are opposed by our then-current Board of Directors, including delaying or impeding a merger, tender offer or proxy contest involving us. Any delay or prevention of a change of control transaction or changes in our Board of Directors could cause the market price of our common stock to decline.
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Item 5. OTHER INFORMATION
Rule 10b5-1 Plan Elections
Barry M. Smith, a member of our Board of Directors, entered into a Rule 10b5-1 trading arrangement on July 29, 2025. Mr. Smith's 10b5-1 plan provides for the recurring monthly sale of up to 700 shares, for a total of up to 8,400 shares of the Company's common stock between January 2, 2026 and December 31, 2026.
Dr. John O. Agwunobi, a member of our Board of Directors, entered into a Rule 10b5-1 trading arrangement on July 31, 2025. Dr. Agwunobi's 10b5-1 plan provides for the potential sale of up to 1,421 shares of the Company's common stock between October 30, 2025 and July 20, 2026.
Barry R. Port, Chief Executive Officer and Chairman of the Board, entered into a Rule 10b5-1 trading arrangement on August 12, 2025. Mr. Port's 10b5-1 plan provides for the potential exercise of vested stock options and the associated sale of up to 28,315 shares of the Company's common stock between November 12, 2025 and August 31, 2026.
Spencer Burton, President and Chief Operations Officer, entered into a Rule 10b5-1 trading arrangement on August 14, 2025. Mr. Burton's 10b5-1 plan provides for the potential exercise of vested stock options and the associated sale of up to 11,798 shares of the Company's common stock between November 17, 2025 and August 31, 2026. Pursuant to the 10b5-1 Plan, Mr. Burton may also make a gift of up to 4,229 shares of the Company's common stock starting on November 17, 2025 and ending on August 31, 2026.
Christopher R. Christensen, Co-founder, Former Executive Chairman, and Former Chairman of the Board, entered into a Rule 10b5-1 trading arrangement on August 19, 2025, prior to his retirement from the Board. Mr. Christensen's 10b5-1 plan provides for the potential exercise of vested stock options and the sale of up to 26,800 shares of the Company's common stock between November 21, 2025 and November 28, 2025.
Beverly B. Wittekind, Executive Vice President and General Counsel, entered into a Rule 10b5-1 trading arrangement on September 2, 2025. Ms. Wittekind's 10b5-1 plan provides for the potential sale of up to 5,900 shares of the Company's common stock and also the potential exercise of vested stock options and the associated sale of up to 5,000 shares of the Company's common stock between December 12, 2025 and July 31, 2026.
Suzanne D. Snapper, Chief Financial Officer, Executive Vice President, and Director, entered into a Rule 10b5-1 trading arrangement on September 12, 2025. Ms. Snapper's 10b5-1 plan provides for the potential exercise of vested stock options and the associated sale of up to 16,516 shares of the Company's common stock between January 2, 2026 and May 21, 2027.
These Rule 10b5-1 trading arrangements were entered into during open trading windows and are intended to satisfy the affirmative defense conditions of Rule 10b5-1 (c) under the Securities Exchange Act of 1934, as amended, and the Company's policies regarding transactions in Company securities.
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Item 6. EXHIBITS
EXHIBIT INDEX

Exhibit |  | Description
3.1 |  | Fifth Amended and Restated Certificate of Incorporation of The Ensign Group, Inc., 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 of The Ensign Group, Inc., 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 (attached as Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q (File No. 001-33757) filed with the SEC on April 29, 2025
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.INS |  | XBRL 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.SCH |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | Inline 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.
November 3, 2025 | BY: | /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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