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 ~~June~~September 30, 2025.


☐			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.

Yes

☐

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).

Yes

☐

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

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

☐

whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐

Yes

As of ~~July~~October 2129, 2025, 57,~~700~~924,~~157~~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 ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2025

TABLE OF CONTENTS

PART I. Financial Information			Pg.
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024			1
Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024			1
Condensed Consolidated Statements of Income for the three and six months ended June 30, 2025 and 2024			2
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 six months ended June 30, 2025 and 2024			3
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 six months ended June 30, 2025 and 2024			5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 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			7273
PART II. Other Information
Item 1. Legal Proceedings			7273
Item 1A. Risk Factors			7576
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			105
Item 5. Other Information			108
Item 5. Other Information			105
Item 6. Exhibits			109
Item 6. Exhibits			106
Signatures

Table of Contents

PART I.

Item 1. FINANCIAL STATEMENTS

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

	June 30, 2025		December 31, 2024
	September 30, 2025		December 31, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	~~363~~443,~~969~~668	$	464,598
Accounts receivable—less allowance for doubtful accounts of $8,320 and $8,435 at June 30, 2025 and December 31, 2024, respectively	578,050		569,897
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	5462,~~473~~641		62,255
Prepaid expenses and other current assets	7087,~~703~~525		60,882
Total current assets	$	1,~~067~~206,~~195~~578	$	1,157,632
Property and equipment, net	1,~~535~~598,~~185~~401		1,291,354
Right-of-use assets	12,~~930~~047,~~662~~979		1,861,071
Insurance subsidiary deposits and investments	~~170~~169,~~752~~142		141,246
Deferred tax assets	6656,~~278~~125		66,281
Restricted and other assets	5543,~~729~~789		46,499
Intangible assets, net	6,~~509~~442		7,292
Goodwill	97,981		97,981
TOTAL ASSETS	$	45,~~930~~226,~~291~~437	$	4,669,356
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	~~102~~105,~~799~~796	$	98,947
Accrued wages and related liabilities	~~334~~370,~~404~~530		347,532
Lease liabilities—current	~~103~~110,~~825~~817		93,475
Accrued self-insurance liabilities—current	7573,~~542~~854		67,331
Other accrued liabilities	~~134~~160,~~820~~042		132,057
Current maturities of long-term debt	4,~~155~~191		4,086
Total current liabilities	$	~~755~~825,~~545~~230	$	743,428
Long-term debt—less current maturities	~~139~~138,~~576~~557		141,585
Long-term lease liabilities—less current portion	1,~~792~~902,~~218~~946		1,735,325
Accrued self-insurance liabilities—less current portion	~~158~~160,~~991~~646		144,421
Other long-term liabilities	6276,~~978~~156		64,169
TOTAL LIABILITIES	$	23,~~909~~103,~~308~~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; 61,240 and 57,676 shares issued and shares outstanding at June 30, 2025, respectively, and 60,838 and 57,438 shares issued and shares outstanding at December 31, 2024, respectively	61		61
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	~~572~~593,~~200~~781		528,052
Retained earnings	1,~~584~~664,~~233~~458		1,426,762
Common stock in treasury, at cost, 3,564 and 3,400 shares at June 30, 2025 and December 31, 2024, respectively	(138,835)		(117,764)
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,~~017~~119,~~659~~465	$	1,837,111
Non-controlling interest	3,~~324~~437		3,317
Total equity	$	2,~~020~~122,~~983~~902	$	1,840,428
TOTAL LIABILITIES AND EQUITY	$	45,~~930~~226,~~291~~437	$	4,669,356

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2025

2024

2025

2024

(In thousands, except per share data)

REVENUE

Service revenue

1,~~221~~289,~~414~~779

1,~~030~~076,~~574~~092

23,~~388~~678,~~454~~233

23,~~035~~111,~~059~~151

Rental revenue

6,~~355~~626

5,~~711~~684

1218,~~356~~982

1117,~~398~~082

TOTAL REVENUE

1,~~227~~296,~~769~~405

1,~~036~~081,~~285~~776

23,~~400~~697,~~810~~215

23,~~046~~128,~~457~~233

Expense:

Cost of services

~~971~~1,~~780~~044,659

~~820~~859,~~360~~992

12,~~899~~944,~~629~~288

12,~~619~~479,~~623~~615

Rent—cost of services

5761,~~195~~528

5354,~~272~~792

~~114~~175,~~271~~799

~~105~~159,~~148~~940

General and administrative expense

6967,~~107~~367

56,~~194~~180

~~131~~199,~~662~~029

~~113~~169,~~352~~532

Depreciation and amortization

2526,~~785~~633

2021,~~488~~474

4976,~~973~~606

4061,~~145~~619

TOTAL EXPENSES

1,~~123~~200,~~867~~187

~~950~~992,~~314~~438

23,~~195~~395,~~535~~722

12,~~878~~870,~~268~~706

Income from operations

~~103~~96,~~902~~218

8589,~~971~~338

~~205~~301,~~275~~493

~~168~~257,~~189~~527

Other income (expense):

Interest expense

(21,~~025~~971)

(2,~~040~~024)

(46,~~062~~033)

(46,~~004~~028)

Interest income

56,~~240~~168

7,~~084~~607

1218,~~123~~291

1321,~~544~~151

Other income

56,~~241~~185

13,~~049~~753

511,~~602~~787

37,~~933~~686

OTHER INCOME, NET

810,~~456~~382

69,~~093~~336

1324,~~663~~045

1322,~~473~~809

Income before provision for income taxes

~~112~~106,~~358~~600

9298,~~064~~674

~~218~~325,~~938~~538

~~181~~280,~~662~~336

Provision for income taxes

2722,~~892~~689

20,~~883~~107

5476,~~119~~808

4161,~~521~~628

NET INCOME

8483,~~466~~911

7178,~~181~~567

~~164~~248,~~819~~730

~~140~~218,~~141~~708

Less:

Net income attributable to noncontrolling interests

7067

~~174~~123

~~146~~213

~~299~~422

NET INCOME ATTRIBUTABLE TO THE ENSIGN GROUP, INC.

8483,~~396~~844

7178,~~007~~444

~~164~~248,~~673~~517

~~139~~218,~~842~~286

NET INCOME PER SHARE ATTRIBUTABLE TO THE ENSIGN GROUP INC.

Basic

1.4846

1.2638

24.8834

23.4886

Diluted

1.4442

1.2234

24.8123

23.4176

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

Basic

57,~~157~~382

56,~~544~~776

57,~~128~~214

56,~~441~~553

Diluted

58,~~602~~956

58,~~013~~444

58,~~560~~713

5758,~~969~~125

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Non-Controlling Interest
(In thousands)	Shares	Amount						Shares	Amount				Total
BALANCE - JANUARY 1, 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

Table of Contents

	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
Repurchase of common stock (Note 20)	—	—		—		—		—	—		—		—
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.

Table of Contents

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	Nine Months Ended September 30,
(In thousands)	2025		2024
Cash flows from operating activities:
Net income	$	~~164~~248,~~819~~730	$	~~140~~218,~~141~~708
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4976,~~973~~606		4061,~~145~~619
Amortization of deferred financing fees	~~530~~793		~~531~~796
Non-cash leasing arrangement	~~407~~632		~~385~~590
Impairment of long-lived assets	—1,073		1,849
Deferred income taxes	—10,156		~~552~~1,931
Provision for doubtful accounts	~~872~~1,509		~~718~~1,419
Stock-based compensation	2235,~~386~~375		1726,~~222~~406
Cash received from insurance proceeds	13,~~000~~877		199
(Gain) loss on insurance claims and asset disposals	(598)		254
(Gain) loss on insurance claims, other investments and asset disposals	(5,953)		849
Litigation	—		(3,734)
Change in operating assets and liabilities
Accounts receivable	(944,~~025~~356)		(6269,~~813~~025)
Prepaid income taxes	(1019,~~453~~507)		(1422,~~968~~130)
Prepaid expenses and other assets	(~~469~~7,716)		(1516,~~538~~668)
Cash surrender value of life insurance policy premiums	(1216,~~295~~332)		(1014,~~725~~840)
Deferred compensation liability	1216,~~162~~332		1014,~~707~~941
Operating lease obligations	(3,~~169~~265)		~~400~~331
Accounts payable	45,~~952~~449		(5,~~559~~237)
Accrued wages and related liabilities	~~(17~~27,~~523)~~549		(825,~~343)~~303
Other accrued liabilities	127,~~817~~081		12,~~258~~308
Accrued self-insurance liabilities	22,~~564~~917		1917,~~568~~381
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	~~227~~380,950	$	~~112~~246,~~249~~730
Cash flows from investing activities:
Purchase of property and equipment	(92143,~~521~~714)		(64110,~~635~~079)
Cash payments for acquisitions	(~~204~~240,~~609~~300)		(6583,~~390~~384)
Escrow deposits	~~(9,002)~~—		(~~646~~3,846)
Cash from insurance proceeds and the sale of assets	2,990		2,949
Cash from insurance proceeds	3,567		1,562
Purchases of investments	(62,678)		(35,508)
Cash proceeds from the sale of assets	124		2,808
Maturities of investments	53,249		19,267
Purchases of investments	(91,791)		(52,262)
Other restricted assets	647		(601)
Maturities of investments	82,278		22,553
NET CASH USED IN INVESTING ACTIVITIES	$	(311,924)	$	(144,564)
Other restricted assets	599		(817)
NET CASH USED IN INVESTING ACTIVITIES	$	(389,237)	$	(223,465)
Cash flows from financing activities:
Payments on debt	(2,025)		(1,958)
Proceeds from debt (Note 14)	—		400
Issuance of common stock upon exercise of options	13,702		10,319
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	(710,~~186~~791)		(610,~~810~~234)
Non-controlling interest distribution	—		(278)
Purchase of non-controlling interest	(75457)		(394,450)
NET CASH (USED IN)/PROVIDED BY IN FINANCING ACTIVITIES	$	(16,655)	$	25
NET CASH USED IN FINANCING ACTIVITIES	$	(12,643)	$	(825)
Net decrease in cash and cash equivalents	(100,629)		(32,290)
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	$	~~363~~443,~~969~~668	$	~~477~~532,~~336~~066

Table of Contents

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

2025

2024

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the period for:

Interest

35,~~567~~220

35,~~488~~276

Income taxes

6486,~~621~~181

5681,~~062~~962

Lease liabilities

~~117~~178,~~256~~699

~~104~~159,~~749~~487

Non-cash financing and investing activity

Accrued capital expenditures

69,~~800~~300

67,~~000~~300

Accrued dividends declared

3,~~605~~619

3,~~424~~437

Right-of-use assets obtained in exchange for new and modified operating lease obligations

~~113~~258,~~553~~486

~~124~~220,~~133~~815

See accompanying notes to condensed consolidated financial statements.

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 ~~June~~September 30, 2025, the Company's independent subsidiaries operated ~~347~~361 facilities and other ancillary operations located in 17 states. The Company's independent subsidiaries have a collective capacity of approximately 3537,~~500~~100 operational skilled nursing beds and 3,~~300~~400 senior living units. As of ~~June~~September 30, 2025, the Company's independent subsidiaries operated ~~238~~249 facilities under long-term lease arrangements and had options to purchase eight of those ~~238~~249 facilities. The Company's real estate portfolio consists of ~~144~~148 owned real estate properties, which includes ~~109~~112 facilities operated and managed by the Company's independent subsidiaries, 3536 operations leased to and operated by third-party operators and the Service Center (defined below) location. Of those 3536 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 ~~June~~September 30, 2025, and for the three and ~~six~~nine months ended ~~June~~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.


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 ~~Annual~~Consolidated ~~Report~~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 ~~annuals~~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 69.85% and 69.6% of all service revenue for the three and ~~six~~nine months ended ~~June~~September 30, 2025, respectively, and 7170.2% and 71.40% of all service revenue for the three and ~~six~~nine months ended ~~June~~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 ~~six~~nine months ended ~~June~~September 30, 2025 and 2024.


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

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

	Three Months Ended June 30,
	Three Months Ended September 30,
	2025				2024
	Revenue		% of Revenue		Revenue		% of Revenue
Medicaid(1)	$	~~485~~515,~~848~~157	39.89	%	$	~~411~~425,~~760~~642	4039.06	%
Medicare	~~291~~303,~~117~~281		23.85		~~258~~263,~~869~~594		2524.15
Medicaid — skilled	7578,~~207~~450		6.21		6265,~~969~~907		6.1
Total Medicaid and Medicare	$	~~852~~896,~~172~~888	69.85	%	$	~~733~~755,~~598~~143	7170.2	%
Managed care	~~229~~237,~~495~~978		18.85		~~191~~202,~~022~~528		18.58
Private and other(2)	~~139~~154,~~747~~913		1112.40		~~105~~118,~~954~~421		1011.30
SERVICE REVENUE	$	1,~~221~~289,~~414~~779	100.0	%	$	1,~~030~~076,~~574~~092	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.
(2) Private and other includes revenue for skilled services (private, Veteran Affairs and hospice payors), senior living and ancillary operations.

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2025				2024
	Revenue		% of Revenue		Revenue		% of Revenue
Medicaid(1)	$	~~939~~1,~~688~~454,845	39.36	%	$	~~801~~1,~~923~~227,565	39.45	%
Medicare	~~578~~882,~~868~~149		24.20		~~524~~788,~~452~~046		25.83
Medicaid — skilled	~~144~~223,~~758~~208		6.10		~~126~~192,~~278~~185		6.2
Total Medicaid and Medicare	$	12,~~663~~560,~~314~~202	69.6	%	$	12,~~452~~207,~~653~~796	71.40	%
Managed care	~~456~~694,~~712~~690		1918.19		~~379~~581,~~126~~654		18.67
Private and other(2)	~~268~~423,~~428~~341		11.35		~~203~~321,~~280~~701		10.03
SERVICE REVENUE	$	23,~~388~~678,~~454~~233	100.0	%	$	23,~~035~~111,~~059~~151	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.
(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,~~355~~626 and $1218,~~356~~982, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2025 and $5,~~711~~684 and $1117,~~398~~082, respectively, for the three and ~~six~~nine months ended ~~June~~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 ~~June~~September 30, 2025 and December 31, 2024, or activity during the three and ~~six~~nine months ended ~~June~~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 ~~June~~September 30, 2025 and December 31, 2024, is summarized in the following table:

	June 30, 2025		December 31, 2024
	September 30, 2025		December 31, 2024
Medicaid	$	~~237~~266,~~393~~048	$	228,872
Managed care	~~159~~162,~~415~~905		139,711
Medicare	9297,~~542~~949		77,056
Private and other payors	9793,~~020~~790		132,693
	$	~~586~~620,~~370~~692	$	578,332
Less: allowance for doubtful accounts	(87,~~320~~948)		(8,435)
ACCOUNTS RECEIVABLE, NET	$	~~578~~612,~~050~~744	$	569,897


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 June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
NUMERATOR:
Net income	$	8483,~~466~~911	$	7178,~~181~~567	$	~~164~~248,~~819~~730	$	~~140~~218,~~141~~708
Less: net income attributable to noncontrolling interests	7067		~~174~~123		~~146~~213		~~299~~422
Net income attributable to The Ensign Group, Inc.	$	8483,~~396~~844	$	7178,~~007~~444	$	~~164~~248,~~673~~517	$	~~139~~218,~~842~~286
DENOMINATOR:
Weighted average shares outstanding for basic net income per share	57,~~157~~382		56,~~544~~776		57,~~128~~214		56,~~441~~553
Basic net income per common share:	$	1.4846	$	1.2638	$	24.8834	$	23.4886

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2025

2024

2025

2024

NUMERATOR:

Net income

8483,~~466~~911

7178,~~181~~567

~~164~~248,~~819~~730

~~140~~218,~~141~~708

Less: net income attributable to noncontrolling interests

7067

~~174~~123

~~146~~213

~~299~~422

Net income attributable to The Ensign Group, Inc.

8483,~~396~~844

7178,~~007~~444

~~164~~248,~~673~~517

~~139~~218,~~842~~286

DENOMINATOR:

Weighted average common shares outstanding

57,~~157~~382

56,~~544~~776

57,~~128~~214

56,~~441~~553

Plus: incremental shares from assumed conversion (1)

1,~~445~~574

1,~~469~~668

1,~~432~~499

1,~~528~~572

Adjusted weighted average common shares outstanding

58,~~602~~956

58,~~013~~444

58,~~560~~713

5758,~~969~~125

Diluted net income per common share:

1.4442

1.2234

24.8123

23.4176

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were ~~920~~1,072 and ~~855~~914 for the three and ~~six~~nine months ended ~~June~~September 30, 2025, respectively, and ~~1,368~~400 and ~~1,252~~858 for the three and ~~six~~nine months ended ~~June~~September 30, 2024, respectively.

5. FAIR VALUE MEASUREMENTS

The Company's financial assets include held-to-maturity investments carried at amortized cost basis of $~~146~~148,~~725~~735 and $138,600, of which $7380,~~839~~706 and $65,831 are designated to support long-term insurance subsidiary liabilities, as of ~~June~~September 30, 2025 and December 31, 2024, respectively. As of ~~June~~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 ~~June~~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.


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

The Company's financial assets also include the contracts insuring the lives of certain employees who are eligible to participate in non-qualified deferred compensation plans that are held in a rabbi trust. The cash surrender value of these contracts is based on funds that shadow the investment allocations specified by participants in the deferred compensation plan and are held at fair value. As of ~~June~~September 30, 2025 and December 31, 2024, the fair value of the investment funds was $6872,~~344~~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 ~~138~~142 of the Company's ~~144~~148 owned real estate properties, of which ~~105~~108 are operated and managed by the Company's independent subsidiaries and 3435 are leased to and operated by third-party operators. Of those 3435 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 ~~six~~nine months ended ~~June~~September 30, 2025, Standard Bearer added $~~195~~228,~~045~~874 of real estate assets associated with 1115 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, ~~one~~two stand-alone skilled nursing ~~operation~~operations isare leased to a third-party ~~operator~~operators and the remaining additions are operated by the Company's independent subsidiaries. Refer to Note 7, Operation Expansions, for additional information.

Subsequent to ~~June~~September 30, 2025, Standard Bearer added approximately $2065,~~820~~000 of real estate assets associated with ~~two~~seven stand-alone skilled nursing operations, of which ~~one~~all ~~was~~were leased back to the Company's independent subsidiaries ~~and one leased to a third-party operator~~. Refer to Note 7, Operation Expansions, for additional information.

During the ~~six~~nine months ended ~~June~~September 30, 2024, Standard Bearer added $6381,~~412~~274 of real estate assets associated with ~~five~~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 ~~105~~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 $2627,~~756~~634 and $5078,~~660~~294, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2025 and $1920,~~156~~234 and $3757,~~162~~396, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2024.


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

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 ~~six~~nine months ended ~~June~~September 30, 2025 was $1,~~883~~955 and $35,~~575~~530, respectively. Management fees generated between Standard Bearer and the Service Center for the three and ~~six~~nine months ended ~~June~~September 30, 2024 was $1,~~401~~466 and $24,~~733~~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 ~~six~~nine months ended ~~June~~September 30, 2025 and 2024, the Company did not grant any stock options or restricted shares under the Standard Bearer Equity Plan. During the ~~six~~nine months ended ~~June~~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 ~~six~~nine months ended ~~June~~September 30, 2025, the Standard Bearer Equity Plan's share-based compensation expense was not material. There was no expense during the three and ~~six~~nine months ended ~~June~~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 ~~six~~nine months ended ~~June~~September 30, 2025, the Company expanded its operations with the addition of 1728 stand-alone skilled nursing operations, ~~two~~five stand-alone senior living operations and one campus operation. These new operations added a total of 13,~~955~~384 operational skilled nursing beds and ~~204~~313 operational senior living units to be operated by the Company's independent subsidiaries.


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

Subsequent to ~~June~~September 30, 2025, the Company expanded its operations with the addition of ~~one~~eight stand-alone skilled nursing ~~operation~~operations. ~~This~~These new ~~operation~~operations added ~~120~~428 operational skilled nursing beds to be operated by ~~one of~~ the Company's independent ~~subsidiary~~subsidiaries.

2024 Expansions

During the ~~six~~nine months ended ~~June~~September 30, 2024, the Company expanded its operations with the addition of 1324 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 12,~~369~~565 operational skilled nursing beds and 202 operational senior living units operated by the Company's independent subsidiaries. Included within the operational skilled nursing ~~bed~~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 ~~June~~September 30, 2025, the skilled services segment includes ~~303~~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 ~~138~~142 owned real estate properties.

The Company also reports an “All Other” category that includes results from its senior living operations, which includes 1316 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.


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

The following tables set forth financial information for the segments:

Three Months Ended June 30, 2025

Three Months Ended September 30, 2025

Skilled Services

Standard Bearer

Total

Service revenue(1)

1,~~173~~239,~~576~~096

—

1,~~173~~239,~~576~~096

Rental revenue

—

3132,~~468~~610

Segment revenue

1,~~173~~239,~~576~~096

3132,~~468~~610

1,~~205~~271,~~044~~706

Reconciliation of revenue:

All other revenue(2)

5760,~~332~~578

Elimination of intercompany revenue(3)

(3435,~~607~~879)

TOTAL CONSOLIDATED REVENUE

1,~~227~~296,~~769~~405

Less:

Other segment items(4)

1,~~009~~071,~~822~~815

2,~~766~~959

Depreciation and amortization

1314,~~750~~155

9,~~265~~709

Interest expense(5)

—

10,~~311~~320

Segment income

~~150~~153,~~004~~126

9,~~126~~622

~~159~~162,~~130~~748

Reconciliation of profit or loss:

All other not included in segment income

(4656,~~772~~148)

INCOME BEFORE PROVISION FOR INCOME TAXES

~~112~~106,~~358~~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 $5457,~~174~~377 of service revenue and $3,~~158~~201 of rental revenue for the three months ended ~~June~~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 $2829,~~271~~185 and intercompany service revenue of $6,~~336~~694 for the three months ended ~~June~~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 $3435,~~607~~879 during the three months ended ~~June~~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,~~023~~090 during the three months ended ~~June~~September 30, 2025, which is eliminated in consolidation.


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

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

Skilled Services

Standard Bearer

Total

Service revenue(1)

~~991~~1,~~285~~033,113

—

~~991~~1,~~285~~033,113

Rental revenue

—

2324,~~354~~429

Segment revenue

~~991~~1,~~285~~033,113

2324,~~354~~429

1,~~014~~057,~~639~~542

Reconciliation of revenue:

All other revenue(2)

4751,~~339~~144

Elimination of intercompany revenue(3)

(2526,~~693~~910)

TOTAL CONSOLIDATED REVENUE

1,~~036~~081,~~285~~776

Less:

Other segment items(4)

~~858~~893,~~189~~083

2,~~129~~420

Depreciation and amortization

1011,~~911~~541

7,~~166~~484

Interest expense(5)

—

67,~~699~~251

Segment income

~~122~~128,~~185~~489

7,~~360~~274

~~129~~135,~~545~~763

Reconciliation of profit or loss:

All other not included in segment income

(37,~~481~~089)

INCOME BEFORE PROVISION FOR INCOME TAXES

9298,~~064~~674

(2) All Other revenue includes $4448,~~340~~209 of service revenue and $2,~~999~~935 of rental revenue for the three months ended ~~June~~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 $2021,~~642~~680 and intercompany service revenue of $5,~~051~~230 for the three months ended ~~June~~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 $2526,~~693~~910 during the three months ended ~~June~~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 $45,~~998~~535 during the three months ended ~~June~~September 30, 2024, which is eliminated in consolidation.


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

Six Months Ended June 30, 2025

Nine Months Ended September 30, 2025

Skilled Services

Standard Bearer

Total

Service revenue(1)

23,~~297~~536,~~130~~226

—

23,~~297~~536,~~130~~226

Rental revenue

—

5992,~~869~~479

Segment revenue

23,~~297~~536,~~130~~226

5992,~~869~~479

23,~~356~~628,~~999~~705

Reconciliation of revenue:

All other revenue(2)

~~109~~170,~~758~~336

Elimination of intercompany revenue(3)

(65101,~~947~~826)

TOTAL CONSOLIDATED REVENUE

23,~~400~~697,~~810~~215

Less:

Other segment items(4)

13,~~976~~048,~~232~~047

58,~~372~~331

Depreciation and amortization

2641,~~963~~118

1727,~~741~~450

Interest expense(5)

—

1929,~~047~~367

Segment income

~~293~~447,~~935~~061

1727,~~709~~331

~~311~~474,~~644~~392

Reconciliation of profit or loss:

All other not included in segment income

(92148,~~706~~854)

INCOME BEFORE PROVISION FOR INCOME TAXES

~~218~~325,~~938~~538

(2) All other revenue includes $~~103~~160,~~601~~978 of service revenue and $69,~~157~~358 of rental revenue for the ~~six~~nine months ended ~~June~~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 $5382,~~670~~855 and intercompany service revenue of $1218,~~277~~971 for the ~~six~~nine months ended ~~June~~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 $65101,~~947~~826 during the ~~six~~nine months ended ~~June~~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 $1625,~~063~~153 during the ~~six~~nine months ended ~~June~~September 30, 2025, which is eliminated in consolidation.


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

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Skilled Services

Standard Bearer

Total

Service revenue(1)

12,~~960~~994,~~887~~000

—

12,~~960~~994,~~887~~000

Rental revenue

—

4569,~~555~~984

Segment revenue

12,~~960~~994,~~887~~000

4569,~~555~~984

23,~~006~~063,~~442~~984

Reconciliation of revenue:

All other revenue(2)

89141,~~911~~055

Elimination of intercompany revenue(3)

(4976,~~896~~806)

TOTAL CONSOLIDATED REVENUE

23,~~046~~128,~~457~~233

Less:

Other segment items(4)

12,~~690~~583,~~446~~529

46,~~266~~686

Depreciation and amortization

2132,~~447~~988

1321,~~995~~479

Interest expense(5)

—

1219,~~676~~927

Segment income

~~248~~377,~~994~~483

1421,~~618~~892

~~263~~399,~~612~~375

Reconciliation of profit or loss:

All other not included in segment income

(81119,~~950~~039)

INCOME BEFORE PROVISION FOR INCOME TAXES

~~181~~280,~~662~~336

(2) All Other revenue includes $83132,~~966~~175 of service revenue and $58,~~945~~880 of rental revenue for the ~~six~~nine months ended ~~June~~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 $4061,~~102~~782 and intercompany service revenue of $915,~~794~~024 for the ~~six~~nine months ended ~~June~~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 $4976,~~896~~806 during the ~~six~~nine months ended ~~June~~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 $914,~~283~~818 during the ~~six~~nine months ended ~~June~~September 30, 2024, which is eliminated in consolidation.

Service revenue by major payor source were as follows:

	Three Months Ended June 30, 2025
	Three Months Ended September 30, 2025
	Skilled Services		All Other (3)		Total Service Revenue		Revenue %
Medicaid(1)	$	~~473~~501,~~904~~722	$	1113,~~944~~435	$	~~485~~515,~~848~~157	39.89	%
Medicare	~~291~~303,~~117~~281		—		~~291~~303,~~117~~281		23.85
Medicaid-skilled	7578,~~207~~450		—		7578,~~207~~450		6.21
Subtotal	$	~~840~~883,~~228~~453	$	1113,~~944~~435	$	~~852~~896,~~172~~888	69.85	%
Managed care	~~229~~237,~~495~~978		—		~~229~~237,~~495~~978		18.85
Private and other(2)	~~103~~117,~~853~~665		3537,~~894~~248		~~139~~154,~~747~~913		1112.40
TOTAL SERVICE REVENUE	$	1,~~173~~239,~~576~~096	$	4750,~~838~~683	$	1,~~221~~289,~~414~~779	100.0	%


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

	Three Months Ended June 30, 2024
	Three Months Ended September 30, 2024
	Skilled Services		All Other (3)		Total Service Revenue		Revenue %
Medicaid(1)	$	~~403~~416,~~127~~190	$	89,~~633~~452	$	~~411~~425,~~760~~642	4039.06	%
Medicare	~~258~~263,~~869~~594		—		~~258~~263,~~869~~594		2524.15
Medicaid-skilled	6265,~~969~~907		—		6265,~~969~~907		6.1
Subtotal	$	~~724~~745,~~965~~691	$	89,~~633~~452	$	~~733~~755,~~598~~143	7170.2	%
Managed care	~~191~~202,~~022~~528		—		~~191~~202,~~022~~528		18.58
Private and other(2)	7584,~~298~~894		3033,~~656~~527		~~105~~118,~~954~~421		1011.30
TOTAL SERVICE REVENUE	$	~~991~~1,~~285~~033,113	$	3942,~~289~~979	$	1,~~030~~076,~~574~~092	100.0	%

	Six Months Ended June 30, 2025
	Nine Months Ended September 30, 2025
	Skilled Services		All Other (3)		Total Service Revenue		Revenue %
Medicaid(1)	$	~~917~~1,~~315~~419,037	$	2235,~~373~~808	$	~~939~~1,~~688~~454,845	39.36	%
Medicare	~~578~~882,~~868~~149		—		~~578~~882,~~868~~149		24.20
Medicaid-skilled	~~144~~223,~~758~~208		—		~~144~~223,~~758~~208		6.10
Subtotal	$	12,~~640~~524,~~941~~394	$	2235,~~373~~808	$	12,~~663~~560,~~314~~202	69.6	%
Managed care	~~456~~694,~~712~~690		—		~~456~~694,~~712~~690		1918.19
Private and other(2)	~~199~~317,~~477~~142		68106,~~951~~199		~~268~~423,~~428~~341		11.35
TOTAL SERVICE REVENUE	$	23,~~297~~536,~~130~~226	$	91142,~~324~~007	$	23,~~388~~678,~~454~~233	100.0	%

	Six Months Ended June 30, 2024
	Nine Months Ended September 30, 2024
	Skilled Services		All Other (3)		Total Service Revenue		Revenue %
Medicaid(1)	$	~~785~~1,~~245~~201,435	$	1626,~~678~~130	$	~~801~~1,~~923~~227,565	39.45	%
Medicare	~~524~~788,~~452~~046		—		~~524~~788,~~452~~046		25.83
Medicaid-skilled	~~126~~192,~~278~~185		—		~~126~~192,~~278~~185		6.2
Subtotal	$	12,~~435~~181,~~975~~666	$	1626,~~678~~130	$	12,~~452~~207,~~653~~796	71.40	%
Managed care	~~379~~581,~~126~~654		—		~~379~~581,~~126~~654		18.67
Private and other(2)	~~145~~230,~~786~~680		5791,~~494~~021		~~203~~321,~~280~~701		10.03
TOTAL SERVICE REVENUE	$	12,~~960~~994,~~887~~000	$	74117,~~172~~151	$	23,~~035~~111,~~059~~151	100.0	%

(1) Medicaid payor includes revenue generated from senior living operations.

(2) Private and other inincludes revenue for 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.


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:

	June 30, 2025		December 31, 2024
	September 30, 2025		December 31, 2024
Land	$	~~200~~204,~~366~~995	$	162,873
Buildings and improvements	1,~~111~~151,~~361~~819		933,790
Leasehold improvements	~~232~~244,~~052~~666		212,603
Equipment	~~440~~463,~~385~~770		396,018
Furniture and fixtures	4,~~642~~719		4,349
Construction in progress	5462,~~054~~326		41,209
	$	2,~~042~~132,~~860~~295	$	1,750,842
Less: accumulated depreciation	(~~507~~533,~~675~~894)		(459,488)
PROPERTY AND EQUIPMENT, NET	$	1,~~535~~598,~~185~~401	$	1,291,354

Management evaluated its long-lived assets and determined there was no impairment during the six months ended June 30, 2025. During the six months ended June 30, 2024, the Company recorded an impairment charge of $1,849 within the Company's consolidated statement of income as cost of services.

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 ~~six~~nine months ended ~~June~~September 30, 2025 and 2024:

Six Months Ended June 30,

Nine Months Ended September 30,

2025

2024

Land

3742,~~493~~122

1417,~~491~~909

Building and improvements

~~162~~192,~~806~~550

4862,~~535~~428

Equipment, furniture, and fixtures

35,~~956~~274

1,~~483~~898

Assembled occupancy

354

~~377~~515

Goodwill

—

372

Other indefinite-lived intangible assets

—

~~132~~262

TOTAL ACQUISITIONS

~~204~~240,~~609~~300

6583,~~390~~384

10. INTANGIBLE ASSETS - NET

		June 30, 2025						December 31, 2024
		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,~~336~~345)	$	9—	$	1,991	$	(1,316)	$	675
Facility trade name	30.0	733		(~~474~~480)		~~259~~253		733		(462)		271
Customer relationships	18.4	4,582		(3,~~007~~059)		1,~~575~~523		4,582		(2,902)		1,680
TOTAL		$	7,660	$	(5,~~817~~884)	$	1,~~843~~776	$	7,306	$	(4,680)	$	2,626

During the three and ~~six~~nine months ended ~~June~~September 30, 2025, amortization expense was $~~740~~340 and $1,~~551~~891, respectively, of which $~~272~~273 and $~~414~~687 was related to the amortization of right-of-use assets, respectively. Amortization expense was $~~536~~598 and $~~937~~1,535, respectively, of which $303 and $~~606~~909 was related to the amortization of right-of-use assets for the three and ~~six~~nine months ended ~~June~~September 30, 2024, respectively.


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)	$	~~128~~61
2026	234
2027	234
2028	234
2029	234
2030	234
Thereafter	545
	$	1,~~843~~776

Other indefinite-lived intangible assets consist of the following:

	June 30, 2025		December 31, 2024
	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 ~~six~~nine months ended ~~June~~September 30, 2025. The Company anticipates that the majority of goodwill recognized will be fully deductible for tax purposes as of ~~June~~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 ~~six~~nine months ended ~~June~~September 30, 2025. The following table represents goodwill value by the skilled services segment and "all other" category as of ~~June~~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:

	June 30, 2025		December 31, 2024
	September 30, 2025		December 31, 2024
Quality assurance fee	$	1516,~~963~~548	$	12,667
Refunds, deferred revenue and advances	7885,~~817~~490		75,573
Cash held in trust for patients	7,~~557~~761		6,370
Dividends payable	3,~~605~~619		3,589
Property taxes	1017,~~943~~133		15,400
Other	17,935		18,458
Accrued litigation (Note 19)	12,000		—
OTHER ACCRUED LIABILITIES	$	134,820	$	132,057
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.


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 $5476,~~119~~808 and $4161,~~521~~628 during the ~~six~~nine months ended ~~June~~September 30, 2025 and 2024, respectively, or 2423.76% of earnings before income taxes for the ~~six~~nine months ended ~~June~~September 30, 2025, compared to 22.90% for the ~~six~~nine months ended ~~June~~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 ~~six~~nine months ended ~~June~~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. AsThe ~~the~~Company ~~legislation~~has ~~was~~reflected ~~signed into law after~~ the ~~close~~impact of the ~~Company's~~enacted ~~second quarter~~provisions, ~~the~~primarily ~~impacts~~affecting ~~are~~deferred ~~not~~tax ~~included~~liability inand ~~the~~income ~~Company's~~tax ~~operating~~receivable ~~results~~balances, ~~for~~in ~~the~~its ~~six~~condensed ~~months~~consolidated ~~ended~~balance ~~June 30, 2025~~sheets. The Company ~~is currently assessing the impact but~~ does not ~~expect~~anticipate that ~~the~~these provisions will ~~have~~affect aits ~~material~~current ~~impact~~period onincome tax expense or its ~~consolidated~~effective ~~financial~~tax ~~statements~~rate for 2025.

14. DEBT

Debt consists of the following:

	June 30, 2025		December 31, 2024
	September 30, 2025		December 31, 2024
Mortgage loans and promissory note	$	~~146~~145,~~413~~388	$	148,438
Less: current maturities	(4,~~155~~191)		(4,086)
Less: debt issuance costs, net	(2,~~682~~640)		(2,767)
LONG-TERM DEBT LESS CURRENT MATURITIES	$	~~139~~138,~~576~~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 ~~June~~September 30, 2025, there was no outstanding debt under the Credit Facility. The Company was in compliance with all loan covenants as of ~~June~~September 30, 2025.


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

Mortgage Loans and Promissory Note

As of ~~June~~September 30, 2025, the Company has 23 subsidiaries that have mortgage loans insured with HUD in the aggregate amount of $~~145~~144,~~187~~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,~~226~~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 ~~June~~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~~, a decrease of $20,491 from December 31, 2024~~. The Company believes that its outstanding letters of credit as of ~~June~~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 ~~six~~nine months ended ~~June~~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 ~~June~~September 30, 2025, the total number of shares available for issuance under the Amended and Restated Plan was 3,~~982~~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:


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

Stock Options



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 ~~three~~nine months ended ~~June~~September 30, 2025 and 2024:

Grant Year

Options Granted

Weighted Average Risk-Free Rate

Expected Life

Weighted Average Volatility

Weighted Average Dividend Yield

~~Weighted Average Dividend Yield~~

2025

~~175~~517

4.21%

6.2 years

39.13%

0.2%

~~0.2%~~

2024

~~173~~466

4.42%

6.1 years

40.67%

0.2%

~~0.2%~~

~~The~~For ~~Company~~the ~~used~~nine months ended September 30, 2025 and 2024, the following ~~assumptions~~represents ~~for~~the ~~stock~~exercise ~~options~~price ~~granted~~and ~~during~~fair ~~the~~value ~~six~~displayed ~~months~~at ~~ended~~grant ~~June~~date ~~30,~~for ~~2025~~stock ~~and~~option ~~2024~~grants:

Grant Year

~~Options~~ Granted

Weighted Average ~~Risk-Free~~Exercise ~~Rate~~Price

~~Expected~~Weighted ~~Life~~Average Fair Value of Options

~~Weighted Average Volatility~~

~~Weighted Average Dividend Yield~~

2025

~~327~~517

~~4.2%~~$

149.08

~~6.2 years~~$

66.56

~~39.4%~~

~~0.2%~~

2024

~~354~~466

~~4.4%~~$

127.07

~~6.1 years~~$

57.81

~~40.8%~~

~~0.2%~~

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

Grant Year	Granted	Weighted Average Exercise Price		Weighted Average Fair Value of Options
2025	327	$	137.42	$	61.71
2024	354	$	120.98	$	55.39

The following table represents the employee stock option activity during the nine months ended September 30, 2025:

The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the six months ended June 30, 2025 and 2024 and therefore, the intrinsic value was $0 at the date of grant.


	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 ~~following~~aggregate ~~table~~intrinsic ~~represents~~value ~~the~~of ~~employee~~options ~~stock~~outstanding, ~~option~~vested, ~~activity~~expected ~~during~~to ~~the~~vest ~~six~~and ~~months~~exercised ~~ended~~as ~~June~~of September 30, 2025 and December 31, 2024 is as follows:

	Number of Options Outstanding			Weighted AverageExercise Price				Number ofOptions Vested	Weighted Average Exercise Price of Options Vested
Options		September 30, 2025				December 31, 2024
January 1, 2025	3,987			$	78.84			1,895	$	52.64
Outstanding		$	327,883			$	219,309
Granted	327			137.42
Vested		212,109				152,011
Forfeited	(31)			104.56
Expected to vest		108,579				63,243
Exercised	(274)			49.89
June 30, 2025	4,009			$	85.40			1,943	$	58.64

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 ~~outstanding,~~that vested during the nine months ended September 30, ~~expected~~2025 toand ~~vest~~2024 was $40,633 and ~~exercised~~$34,971, asrespectively. The total intrinsic value of ~~June~~ options exercised during the nine months ended September 30, 2025 and ~~December 31~~2024 was $44,962 ~~2024~~and is$50,840, asrespectively. ~~follows:~~

Options	June 30, 2025		December 31, 2024
Outstanding	$	276,046	$	219,309
Vested	185,823		152,011
Expected to vest	84,487		63,243

Restricted Stock Awards

The ~~intrinsic~~Company ~~value~~granted is43 ~~calculated~~and as177 ~~the~~restricted ~~difference~~stock ~~between~~awards during the ~~market~~three ~~value~~and ofnine ~~the~~months ~~underlying~~ended ~~common~~September ~~stock~~30, 2025, respectively. The Company granted 29 and 116 restricted stock awards during the ~~exercise~~three and nine months ended September 30, 2024, respectively. All awards were granted at an issue price of ~~the~~$0 ~~options~~and generally vest over five years. The ~~aggregate~~fair ~~intrinsic~~ value per share of ~~options~~restricted ~~that~~awards ~~vested~~granted during the ~~six~~nine months ended ~~June~~September 30, 2025 and 2024 ~~was~~ranged from $~~22,121~~126.34 to $169.24 and $18116.65 to $146.37,~~073,~~ respectively. The ~~total~~fair ~~intrinsic~~ value ofper ~~options~~share ~~exercised~~includes ~~during~~quarterly ~~the~~stock ~~six~~awards ~~months~~to ~~ended~~non-employee ~~June~~directors. ~~30,~~Included ~~2025~~in ~~and~~the ~~2024~~restricted ~~was~~stock award grants are $248,~~957~~003 and $296,~~894~~165 of annual bonuses that were settled in vested restricted stock awards in the first quarter of 2025 and 2024, respectively.


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

~~Restricted~~A ~~Stock~~summary ~~Awards~~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:

The Company granted 42 and 134 restricted stock awards during the three and six months ended June 30, 2025, respectively. The Company granted 42 and 137 restricted stock awards during the three and six months ended June 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 six months ended June 30, 2025 and 2024 ranged from $126.34 to $147.04 and $116.65 to $122.69, 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.


	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

ADuring ~~summary~~the ofthree and nine months ended September 30, 2025, the ~~status~~Company ofgranted 4 and 11 automatic quarterly stock awards, respectively, to non-employee directors for their service on the Company's ~~non-vested~~board ~~restricted~~of ~~stock~~directors. ~~awards~~The asfair value per share of ~~June 30,~~these ~~2025~~stock ~~and~~awards ~~changes~~ranged ~~during~~from ~~the~~$129.09 ~~six~~to ~~months~~$141.18 ~~ended~~based ~~June~~on ~~30,~~the ~~2025~~market isprice ~~presented~~on ~~below:~~the grant date.

	Non-Vested Restricted Awards	Weighted Average Grant Date Fair Value
Nonvested at January 1, 2025	435	$	102.71
Granted	134	134.11
Vested	(152)	105.12
Forfeited	(6)	109.88
Nonvested at June 30, 2025	411	$	112.17

During the three and six months ended June 30, 2025, the Company granted 3 and 7 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 $134.58 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 ~~six~~nine months ended ~~June~~September 30, 2025 and 2024 was as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2025

2024

2025

2024

Stock-based compensation expense related to stock options

78,~~402~~361

5,~~518~~699

1422,~~207~~568

1016,~~506~~205

Stock-based compensation expense related to restricted stock awards

3,~~761~~999

2,~~936~~883

711,~~163~~162

58,~~663~~546

Stock-based compensation expense related to restricted stock awards to non-employee directors

~~465~~508

~~524~~595

~~949~~1,457

1,~~040~~635

TOTAL

1112,~~628~~868

89,~~978~~177

2235,~~319~~187

1726,~~209~~386

In future periods, the Company expects to recognize approximately $8994,~~480~~617 and $3942,~~906~~557 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of ~~June~~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,~~066~~075 unvested and outstanding options as of ~~June~~September 30, 2025, of which 1,~~900~~916 options are expected to vest. The weighted average contractual life for options outstanding, vested and expected to vest as of ~~June~~September 30, 2025 was 6.7 years.

16. LEASES

The Company leases from CareTrust real property associated with 96104 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.


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

The ~~Company~~rent ~~does~~structure ~~not~~under ~~have~~ the ~~ability~~Master Leases includes a fixed component, subject to ~~terminate~~annual escalation equal to the ~~obligations~~lesser ~~under~~of a(1) ~~Master~~the ~~Lease~~percentage ~~prior~~change toin ~~its~~the ~~expiration~~Consumer ~~without~~Price ~~CareTrust’s~~Index ~~consent~~(but not less than zero) or (2) 2.5%. IfIn aaddition ~~Master~~to ~~Lease~~rent, the Company is ~~terminated~~required ~~prior~~to pay the following: (1) all impositions and taxes levied on or with respect to ~~its~~the ~~expiration~~leased properties (other than ~~with~~taxes ~~CareTrust’s~~on ~~consent,~~the income of the ~~Company~~lessor); ~~may~~(2) beall ~~liable~~utilities and other services necessary or appropriate for ~~damages~~the leased properties and ~~incur~~the ~~charges~~business ~~such~~conducted ason ~~continued~~the ~~payment~~leased ofproperties; ~~rent~~(3) ~~through~~all insurance required in connection with the ~~end~~leased ofproperties and the ~~lease~~business ~~term~~conducted ason ~~well~~the asleased 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 ~~property~~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.

~~The~~Among ~~rent~~other ~~structure~~things, 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 ismust ~~required~~maintain tocompliance ~~pay the following: (1) all impositions and taxes levied on or~~ with ~~respect~~specified tofinancial ~~the~~covenants ~~leased~~measured ~~properties (other than taxes~~ on ~~the~~a ~~income~~quarterly ofbasis, ~~the~~including ~~lessor);~~a ~~(2)~~portfolio ~~all~~coverage ~~utilities~~ratio and ~~other~~a ~~services~~minimum ~~necessary~~rent orcoverage ~~appropriate~~ratio. ~~for~~The ~~the~~Master ~~leased~~Leases ~~properties~~also ~~and~~include ~~the~~certain ~~business~~reporting, ~~conducted~~legal ~~on the leased properties; (3) all insurance required in connection with the leased properties~~ and ~~the~~authorization ~~business~~requirements. ~~conducted~~The onCompany ~~the~~is ~~leased properties; (4) all facility maintenance and repair costs; and (5) all fees~~ in ~~connection~~compliance with ~~any~~requirements ~~licenses~~of ~~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~~as ~~approximately~~of ~~$16,904 and $34,030 for the three and six months ended June~~ September 30, 2025~~, respectively, and $17,272 and $34,072 for the three and six months ended June 30, 2024, respectively~~.

~~Among~~The ~~other~~Company ~~things,~~leases ~~under~~facilities ~~the~~where ~~Master~~its ~~Leases,~~independent ~~the~~subsidiaries ~~Company~~operate ~~must~~and ~~maintain~~certain ~~compliance~~administrative ~~with~~offices ~~specified~~under ~~financial~~non-cancelable ~~covenants~~operating ~~measured~~leases, onmost aof ~~quarterly~~which ~~basis,~~have ~~including~~initial alease ~~portfolio~~terms ~~coverage~~ranging ~~ratio~~from ~~and~~15 ato ~~minimum~~20 ~~rent coverage ratio~~years. ~~The~~Most ~~Master~~of ~~Leases~~these ~~also~~leases ~~include~~contain ~~certain~~renewal ~~reporting~~options, ~~legal~~certain ~~and authorization requirements. The Company is in compliance with requirements~~ of ~~the~~which ~~Master~~involve ~~Leases~~rent ~~as of June 30, 2025~~increases.

The Company's ~~leases~~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 ~~where~~operated ~~its~~by the Company's independent subsidiaries ~~operate~~with ~~and~~an ~~certain~~initial ~~administrative~~term ~~offices~~of ~~under~~15 ~~non~~years. The new Master Lease increased the lease liabilities and right-~~cancelable~~of-use ~~operating~~assets ~~leases~~by $57,961 ~~most~~to reflect the new lease obligations. In the second quarter of ~~which~~2025, ~~have~~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 ~~terms~~liabilities ~~ranging~~and ~~from~~right-of-use 15assets by $52,753 to 20reflect ~~years~~the new lease obligations. In ~~addition~~the third quarter of 2025, the Company ~~leases~~entered ~~certain~~into ofone ~~its~~new ~~equipment~~Master ~~under~~Lease ~~non~~to add two stand-~~cancelable~~alone ~~operating~~skilled ~~leases~~nursing facilities operated by the Company's independent subsidiaries with an initial ~~terms~~term ~~ranging~~of ~~from~~14 ~~three~~years. The new Master Lease increased the lease liabilities and right-of-use assets by $6,833 to ~~five~~reflect ~~years~~the new lease obligations. ~~Most~~Under the Master Leases, a default at a single facility could subject one or more of ~~these~~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, ~~contain~~master ~~renewal~~lease ~~options~~agreements and debt financing instruments. In addition, ~~certain~~other potential defaults related to an individual facility may cause a default of ~~which~~an ~~involve~~entire ~~rent~~master ~~increases~~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 Company's 100 independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases with CareTrust, are operated under 17 separate master lease arrangements. In the first quarter of 2025, the Company entered into one new master lease arrangement 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 arrangement 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 arrangements 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 arrangements increased the lease liabilities and right-of-use assets by $52,753 to reflect the new lease obligations. Under the master leases, a default at a single facility could subject one or more of the other facilities covered by the same master lease to the same default risk. Failure to comply with Medicare and Medicaid provider requirements is a default under several of the Company’s leases, master lease agreements and debt financing instruments. In addition, other potential defaults related to an individual facility may cause a default of an entire master lease portfolio and could trigger cross-default provisions in the Company’s outstanding debt arrangements and other leases. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.

The components of operating lease expense are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2025

2024

2025

2024

Rent - cost of services(1)

5761,~~195~~528

5354,~~272~~792

~~114~~175,~~271~~799

~~105~~159,~~148~~940

Cost of services(2)

6,~~611~~787

56,~~649~~344

1319,~~040~~827

1117,~~419~~763

General and administrative expense

~~214~~195

~~181~~179

~~413~~608

~~334~~513

Depreciation and amortization(3)

~~272~~273

303

~~414~~687

~~606~~909

6468,~~292~~783

5961,~~405~~618

~~128~~196,~~138~~921

~~117~~179,~~507~~125

(1)Rent - cost of services includes deferred rent expense adjustments of $~~199~~225 and $~~407~~632 for the three and ~~six~~nine months ended ~~June~~September 30, 2025, respectively, and $~~190~~205 and $~~385~~590 for the three and ~~six~~nine months ended ~~June~~September 30, 2024, respectively. Additionally, rent - cost of services includes other variable lease costs such as CPI increases and short-term leases of $4,~~634~~922 and $813,~~638~~560 for the three and ~~six~~nine months ended ~~June~~September 30, 2025, respectively, and $3,~~300~~668 and $610,~~357~~025 for the three and ~~six~~nine months ended ~~June~~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.


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

Future minimum lease payments for all third-party leases as of ~~June~~September 30, 2025 are as follows:

Year	Amount
2025 (remainder)	$	~~108~~58,~~371~~013
2026	~~216~~232,~~519~~010
2027	~~215~~231,~~728~~598
2028	~~214~~230,~~656~~640
2029	~~210~~225,~~795~~219
2030	~~206~~220,~~617~~897
Thereafter	1,~~686~~818,~~729~~251
TOTAL LEASE PAYMENTS	$	23,~~859~~016,~~415~~628
Less: present value adjustment	(~~963~~1,~~372~~002,865)
PRESENT VALUE OF TOTAL LEASE LIABILITIES	$	12,~~896~~013,~~043~~763
Less: current lease liabilities	(~~103~~110,~~825~~817)
LONG-TERM OPERATING LEASE LIABILITIES	$	1,~~792~~902,~~218~~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 ~~June~~September 30, 2025, the weighted average remaining lease term is 14.20 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.

~~During~~In the ~~three~~second ~~and~~quarter ~~six~~of ~~months ended June 30,~~ 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 ~~six~~nine months ended ~~June~~September 30, 2025 and 2024 is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2025

2024

2025

2024

Pennant(1)

4,~~082~~084

3,~~824~~821

812,~~204~~288

711,~~644~~465

Other third-party(2)

2,~~273~~542

1,~~887~~863

46,~~152~~694

35,~~754~~617

TOTAL

6,~~355~~626

5,~~711~~684

1218,~~356~~982

1117,~~398~~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 $23,~~223~~339 for the three and ~~six~~nine months ended ~~June~~September 30, 2025, respectively, and $1,089 and $23,~~169~~258 for the three and ~~six~~nine months ended ~~June~~September 30, 2024, respectively.


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

Future annual rental income for all third-party leases as of ~~June~~September 30, 2025 were as follows:

Year	Amount(1)
2025 (remainder)	$	136,~~218~~871
2026	2526,~~822~~977
2027	2526,~~278~~399
2028	2426,~~933~~071
2029	2425,~~821~~960
2030	2324,~~829~~907
Thereafter	~~112~~122,~~200~~114
TOTAL	$	~~250~~259,~~101~~299

(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of ~~June~~September 30, 2025.

Subsequent to June 30, 2025, the Company entered into one lease agreement with a third-party operator for one stand-alone skilled nursing operation.

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 ~~six~~nine months ended ~~June~~September 30, 2025 and 2024.

As of ~~June~~September 30, 2025 and December 31, 2024, the Company accrued $6275,~~816~~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 ~~six~~nine months ended ~~June~~September 30, 2025, the Company recorded gains related to its DCP of $43,~~482~~048 and $47,~~200~~248, respectively, which is included in other income, ~~(expense)~~net, and recorded offsetting expenses of $43,~~578~~184 and $47,~~344~~528, respectively, which is allocated between cost of services and general and administrative expenses.

For the three and ~~six~~nine months ended ~~June~~September 30, 2024, the Company recorded gains related to its DCP of $~~527~~3,175 and $26,~~921~~096, respectively, which is included in other income, ~~(expense)~~net, and recorded offsetting expenses of $~~628~~3,294 and $36,~~116~~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 $23,~~950~~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,~~500~~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.


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

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 ~~June~~September 30, 2025 and December 31, 2024:

	June 30, 2025		December 31, 2024
	September 30, 2025		December 31, 2024
Accrued general liability and professional malpractice liabilities	$	~~179~~177,~~515~~814	$	160,149
Accrued workers’ compensation liabilities	3940,~~018~~044		37,291
Accrued health benefits	16,~~000~~642		14,312
TOTAL SELF-INSURANCE LIABILITIES	$	234,~~533~~500	$	211,752
Less: current self-insurance liabilities	7573,~~542~~854		67,331
LONG-TERM SELF-INSURANCE LIABILITIES	$	~~158~~160,~~991~~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,~~958~~572 and $17,741, as of ~~June~~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.


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

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.

~~Other~~From ~~claims~~time ~~and~~to ~~suits~~time, ~~including~~various ~~class~~state ~~actions,~~or ~~continue~~Federal toagencies bemay ~~filed~~issue ~~against~~requests ~~the~~for ~~Company~~information, ~~and~~including ~~other~~but ~~companies~~not inlimited ~~its~~to ~~industry~~a subpoena. ~~The~~As ~~Company~~an ~~and~~example, ~~its~~California's ~~independent~~Office ~~subsidiaries~~of ~~have~~Health ~~been~~Care ~~subjected~~Affordability ~~to,~~is ~~and are~~ currently ~~involved~~conducting ~~in,~~a ~~class~~Cost ~~action~~and ~~litigation~~Market ~~alleging~~Impact ~~violations~~Review (~~alone or in combination~~CMIR) ofwith ~~state~~respect ~~and federal wage and hour laws as related~~ to ~~the~~specific ~~alleged~~components ~~failure~~of toa ~~pay~~proposed ~~wages,~~transaction toinvolving ~~timely~~several ~~provide~~of ~~and~~our ~~compensate~~California ~~for~~operations. ~~meal~~We ~~and~~have ~~rest~~been ~~breaks,~~ and ~~related~~will ~~causes~~continue ofto ~~action.~~communicate ~~The~~with ~~Company does not believe that~~ the ~~ultimate~~Office ~~resolution~~ of ~~these~~Health ~~actions~~Care ~~will~~Affordability ~~have~~regarding anall ~~ongoing~~correspondence ~~material~~and ~~adverse~~informational ~~effect~~requests onrelated to the ~~Company’s business, cash flows, financial condition or results of operations~~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.

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.


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

~~Medicare~~In ~~Revenue~~2018, ~~Recoupments~~the —Company, ~~The~~on ~~Company's~~behalf of its independent subsidiaries, ~~are~~received ~~subject~~a toCID ~~regulatory~~from ~~reviews~~the ~~relating~~DOJ stating that it was investigating to ~~the~~determine ~~provision~~whether there had been a violation of ~~Medicare~~the ~~and~~False ~~Medicaid~~Claims ~~services,~~Act ~~billings~~(FCA) and/or ~~potential~~the ~~overpayments~~Anti-Kickback asStatute a(AKS) ~~result~~with ofrespect ~~Recovery~~to ~~Audit~~the ~~Contractors~~relationships ~~(RAC),~~between ~~various~~certain ~~Program~~of ~~Safeguard~~the ~~Contractors~~Company’s independent subsidiaries and ~~Medicaid~~persons ~~Integrity~~who ~~Contractors~~serve ~~(collectively~~or ~~referred~~have toserved as ~~Reviews)~~medical directors. ~~Reviews~~In ~~vary~~2020, inthe ~~claim~~Company ~~selection~~was ~~size~~advised ~~and~~that ~~processes,~~the ~~ranging~~DOJ ~~from~~declined ato ~~single~~intervene ~~episode/claim~~in ~~month~~any tosubsequent ~~larger,~~action ~~multi-claim~~filed ~~batches;~~in ~~and~~connection ~~from~~with ~~single~~the ~~rounds~~subject matter of ~~review~~this toinvestigation. ~~reviews~~Despite ofthe ~~multiple~~decision ~~rounds~~of ~~with~~the ~~pass/fail~~DOJ ~~criteria.~~to Ifdecline anto ~~operation~~participate ~~has~~in alitigation ~~significant~~based ~~error~~on ~~rate~~the orsubject ~~fails~~matter aof ~~Review~~its ~~and/or~~previously ~~subsequent~~issued ~~Reviews~~CID, the ~~operation~~involved ~~could~~qui ~~then~~tam berelator ~~subject~~moved toforward ~~extended~~with ~~review~~the orcomplaint anin ~~extrapolation~~2020. ofIn 2024, the ~~identified~~Company ~~error~~mediated ~~rate~~with tothe ~~billings~~involved inparties ~~the~~and ~~same~~agreed ~~time~~to ~~period.~~settle ~~The~~the ~~Company~~civil ~~anticipates~~case ~~that~~for ~~these~~$48,000 ~~Reviews~~and ~~could~~recorded ~~increase~~the inaccrual ~~frequency~~as inof ~~the~~December ~~future~~31, 2023. AsFollowing the finalization of ~~June 30,~~the ~~2025~~settlement documents and ~~through~~payment of the ~~filing~~settlement ~~date~~funds ofduring ~~this~~the ~~report,~~fourth 10quarter of 2024, the ~~Company's~~qui ~~independent~~tam ~~subsidiaries~~complaint ~~had~~was ~~multi-claim~~dismissed ~~Reviews~~and ~~scheduled~~the ormatter inwas ~~process~~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 5658.36% and 52.9% of its total accounts receivable as of ~~June~~September 30, 2025 and December 31, 2024, respectively. Revenue from reimbursement under the Medicare and Medicaid programs accounted for 69.85% and 69.6% of the Company's service revenue for the three and ~~six~~nine months ended ~~June~~September 30, 2025, respectively, and 7170.2% and 71.40% for the three and ~~six~~nine months ended ~~June~~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 ~~June~~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 ~~three~~first and ~~six~~second ~~months~~quarter ~~ended~~of ~~June 30,~~ 2025, the Company purchased 7384 and ~~157~~73, respectively, of its common stock for $910,~~225~~775 and $209,~~000~~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.

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.

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

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 ~~June~~September 30, 2025, we offered skilled nursing, long term acute care, senior living and rehabilitative care services through ~~347~~361 skilled nursing and senior living facilities. Our real estate portfolio includes ~~144~~148 owned real estate properties, which includes ~~109~~112 facilities operated and managed by us, 3536 operations leased to and operated by third-party operators and the Service Center location. Of the 3536 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that we own and operate.

The following table summarizes our independent subsidiaries and operational skilled nursing beds and senior living units by ownership status as of June 30, 2025:

	Owned and Operated		Leased (with a Purchase Option)		Leased (without a Purchase Option)		Total for Facilities Operated
Number of facilities	109		8		230		347
Percentage of total	31.4	%	2.3	%	66.3	%	100.0	%
Operational skilled nursing beds	10,899		687		23,959		35,545
Percentage of total	30.7	%	1.9	%	67.4	%	100.0	%
Senior living units	1,938		142		1,212		3,292
Percentage of total	58.9	%	4.3	%	36.8	%	100.0	%

Table of Contents

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 ~~six~~nine months ended ~~June~~September 30, 2025, we expanded our operations with the addition of 1728 stand-alone skilled nursing operations, ~~two~~five stand-alone senior living and one campus operation. These new operations added a total of 13,~~955~~384 operational skilled nursing beds and ~~204~~313 operational senior living units operated by our independent ~~operating~~ subsidiaries.

Subsequent to ~~June~~September 30, 2025, we expanded our operations with the addition of ~~one~~eight stand-alone skilled nursing ~~operation~~operations which added ~~120~~428 operational skilled nursing beds operated by ~~one~~our ~~of the~~ Company's independent ~~subsidiary~~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. ~~This structure gives us new pathways to growth with transactions we would not have considered in the past.~~

During the six months ended June 30, 2025, Standard Bearer added $195.0 million of real estate associated with 11 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, one stand-alone skilled nursing operation is leased to a third-party operator and the remaining additions are operated by our independent subsidiaries.

Subsequent to June 30, 2025, Standard Bearer added $20.8 million of real estate associated with two stand-alone skilled nursing operations, where one stand-alone skilled nursing facility was leased back to our independent operating subsidiary and the remaining real estate acquisition was leased to a third-party operator. Our existing relationships with third-party operators within our industry have allowed us to expand our growing REIT structure to operators outside of our organization.

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~~Common~~During ~~Stock~~the ~~Repurchase~~nine ~~Program~~months —ended OnSeptember ~~February 21~~30, 2025, ~~the~~Standard ~~Board~~Bearer added $228.9 million of ~~Directors~~real ~~approved~~estate aassociated ~~stock~~with ~~repurchase~~15 ~~program~~stand-alone ~~pursuant~~skilled tonursing ~~which~~operations, weone ~~may~~stand-alone ~~repurchase~~senior upliving tooperation ~~$20.0 million~~and oftwo ~~our~~campus ~~common~~operations. ~~stock~~Four ~~under~~of the ~~program~~acquisitions ~~for~~were arelated ~~period~~to ofexercising ~~approximately~~purchase 12options ~~months~~ from ~~March 26~~CareTrust REIT, ~~2025~~Inc. ~~During~~(CareTrust) ~~the~~lease ~~first~~arrangements ~~quarter~~where ofour ~~2025,~~independent wesubsidiaries ~~purchased~~have 84been ~~shares~~operating ofand ~~our~~managing ~~common~~these ~~stock~~locations. ~~for~~Of ~~$10.8~~these ~~million.~~additions, ~~During~~two ~~the~~stand-alone ~~second~~skilled ~~quarter~~nursing ofoperations ~~2025,~~are weleased ~~purchased~~to 73third-party ~~shares~~operators ofand ~~our~~the ~~common~~remaining ~~stock~~additions ~~for~~are ~~$9.2~~operated ~~million~~by our independent subsidiaries. ~~This~~Our ~~repurchase~~existing ~~program~~relationships ~~expired~~with ~~upon~~third-party ~~the~~operators ~~repurchase~~within ofour ~~the~~industry ~~fully~~have ~~authorized~~allowed ~~amount~~us ~~under~~to ~~the~~expand ~~plan~~our ~~and~~growing isREIT nostructure ~~longer~~to inoperators ~~effect~~outside of our organization.

OnSubsequent ~~May~~to 15September 30, 2025, ~~the~~Standard ~~Board~~Bearer ofadded ~~Directors~~approximately ~~approved a stock repurchase program pursuant to which we can repurchase up to~~ $2065.0 million of ~~our~~real ~~common~~estate ~~stock~~associated ~~under~~with ~~the~~seven ~~program~~stand-alone ~~for~~skilled anursing ~~period~~operations, ofas ~~approximately~~discussed ~~12 months from June 16~~above, ~~2025.~~where ~~During~~all ~~the second quarter~~ of ~~2025,~~the westand-alone ~~did~~skilled ~~not~~nursing ~~repurchase~~facilities ~~any~~were ~~shares~~leased ~~pursuant~~back to ~~this~~our ~~stock~~independent ~~repurchase program~~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 ~~June~~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,~~240~~242	604	10,~~844~~846
California	7078	14	3	7485	68,~~975~~162	~~269~~378	78,~~244~~540
Arizona	33	1	6	40	5,~~009~~026	891	5,~~900~~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	1314	—	1	1415	1,~~173~~301	21	1,~~194~~322
Tennessee	11	—	—	11	1,120	—	1,120
Kansas	3	—	8	11	~~828~~833	251	1,~~079~~084
South Carolina	9	—	—	9	1,126	—	1,126
Iowa	7	—	2	9	602	31	633
Nebraska	4	1	3	8	496	199	695
Iowa	6	—	2	8	530	31	561
Wisconsin	4	—	—	4	302	—	302
Nevada	3	—	—	3	483	—	483
Wisconsin	3	—	—	3	182	—	182
Alaska	1	1	—	2	146	82	228
Alabama	1	—	—	1	91	—	91
Oregon	—	—	1	1	98	50	148
	303	13	31	347	35,545	3,292	38,837
	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 ~~June~~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,~~075~~077	574	3,~~649~~651
Arizona	12	—	5	17	2,~~044~~052	494	2,~~538~~546
California	11	—	1	12	1,290	42	1,332
Colorado	6	3	—	9	592	369	961
Utah	8	—	—	8	764	—	764
Kansas	1	—	5	6	440	167	607
South Carolina	5	—	—	5	544	—	544
Washington	6	—	—	6	621	—	621
Idaho	5	—	—	5	470	—	470
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
Wisconsin	3	—	—	3	182	—	182
Alaska	1	1	—	2	146	82	228
Iowa	23	—	—	23	~~162~~234	—	~~162~~234
Oregon	—	—	1	1	98	50	148
	86	6	17	109	10,899	1,938	12,837
	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 ~~June~~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	67	—	3233
Wisconsin	34	22	—	2526
Arizona	17	1	—	18
California	12	2	1	15
Colorado	9	—	—	9
Utah	8	—	—	8
Washington	6	3	—	9
Utah	8	—	—	8
Idaho	6	—	—	6
Kansas	6	—	—	6
Idaho	5	—	—	5
South Carolina	5	—	—	5
Iowa	3	—	—	3
Nebraska	3	—	—	3
Tennessee	3	—	—	3
Iowa	2	—	—	2
Alaska	2	—	—	2
Oregon	1	—	—	1
Nevada	—	1	—	1
	109	35	1	144
	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 June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
Skilled Mix:	2025		2024		2025		2024
Days	30.83	%	29.97	%	3130.18	%	30.42	%
Revenue	4948.29	%	48.25	%	49.74	%	4948.08	%

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Occupancy for skilled services:

2025

2024

2025

2024

Operational beds at end of period

3537,~~545~~076

3133,~~813~~039

3537,~~545~~076

3133,~~813~~039

Available patient days

3,~~216~~367,~~445~~685

2,~~869~~974,~~623~~651

69,~~316~~683,~~122~~807

58,~~684~~658,~~342~~993

Actual patient days

2,~~615~~772,~~490~~062

2,~~299~~407,~~068~~709

57,~~153~~925,~~626~~688

46,~~554~~962,~~599~~308

Occupancy percentage (based on operational beds)

8182.3

80.19

81.68

80.14

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 June 30,

Three Months Ended September 30,

Skilled Services

All Other (3)

Total Service Revenue

2025

2024

2025

2024

2025

2024

Medicaid(1)

~~473~~501,~~904~~722

~~403~~416,~~127~~190

1113,~~944~~435

89,~~633~~452

~~485~~515,~~848~~157

~~411~~425,~~760~~642

Medicare

~~291~~303,~~117~~281

~~258~~263,~~869~~594

—

~~291~~303,~~117~~281

~~258~~263,~~869~~594

Medicaid-skilled

7578,~~207~~450

6265,~~969~~907

—

7578,~~207~~450

6265,~~969~~907

Subtotal

~~840~~883,~~228~~453

~~724~~745,~~965~~691

1113,~~944~~435

89,~~633~~452

~~852~~896,~~172~~888

~~733~~755,~~598~~143

Managed care

~~229~~237,~~495~~978

~~191~~202,~~022~~528

—

~~229~~237,~~495~~978

~~191~~202,~~022~~528

Private and other(2)

~~103~~117,~~853~~665

7584,~~298~~894

3537,~~894~~248

3033,~~656~~527

~~139~~154,~~747~~913

~~105~~118,~~954~~421

TOTAL SERVICE REVENUE

1,~~173~~239,~~576~~096

~~991~~1,~~285~~033,113

4750,~~838~~683

3942,~~289~~979

1,~~221~~289,~~414~~779

1,~~030~~076,~~574~~092

	Three Months Ended June 30,
	Three Months Ended September 30,
	Skilled Services				All Other (3)				Total Service Revenue
	2025		2024		2025		2024		2025		2024
Medicaid(1)	40.45	%	40.73	%	2526.05	%	22.0	%	39.89	%	4039.06	%
Medicare	24.85		2625.15		—		—		23.85		2524.15
Medicaid-skilled	6.43		6.34		—		—		6.21		6.1
Subtotal	71.63	%	7372.12	%	2526.05	%	22.0	%	69.85	%	7170.2	%
Managed care	19.62		19.36		—		—		18.85		18.58
Private and other(2)	89.85		78.62		7573.05		78.0		1112.40		1011.30
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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Six Months Ended June 30,

Nine Months Ended September 30,

Skilled Services

All Other (3)

Total Service Revenue

2025

2024

2025

2024

2025

2024

Medicaid(1)

~~917~~1,~~315~~419,037

~~785~~1,~~245~~201,435

2235,~~373~~808

1626,~~678~~130

~~939~~1,~~688~~454,845

~~801~~1,~~923~~227,565

Medicare

~~578~~882,~~868~~149

~~524~~788,~~452~~046

—

~~578~~882,~~868~~149

~~524~~788,~~452~~046

Medicaid-skilled

~~144~~223,~~758~~208

~~126~~192,~~278~~185

—

~~144~~223,~~758~~208

~~126~~192,~~278~~185

Subtotal

12,~~640~~524,~~941~~394

12,~~435~~181,~~975~~666

2235,~~373~~808

1626,~~678~~130

12,~~663~~560,~~314~~202

12,~~452~~207,~~653~~796

Managed care

~~456~~694,~~712~~690

~~379~~581,~~126~~654

—

~~456~~694,~~712~~690

~~379~~581,~~126~~654

Private and other(2)

~~199~~317,~~477~~142

~~145~~230,~~786~~680

68106,~~951~~199

5791,~~494~~021

~~268~~423,~~428~~341

~~203~~321,~~280~~701

TOTAL SERVICE REVENUE

23,~~297~~536,~~130~~226

12,~~960~~994,~~887~~000

91142,~~324~~007

74117,~~172~~151

23,~~388~~678,~~454~~233

23,~~035~~111,~~059~~151

	Six Months Ended June 30,
	Nine Months Ended September 30,
	Skilled Services				All Other (3)					Total Service Revenue
	2025		2024			2025		2024			2025		2024
Medicaid(1)	3940.91	%	40.01	%		2425.52	%	22.53	%		39.36	%	39.45	%
Medicare	2524.29		26.73			—		—			24.20		25.83
Medicaid-skilled	6.34		6.5			—		—			6.10		6.2
Subtotal	71.4	%	7372.29	%		2425.52	%	22.53	%		69.6	%	71.40	%
Managed care	19.96		19.34			—		—			1918.19		18.67
Private and other(3)	8.7		7.5			75.5		77.5			11.3		10.0
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):

~~One~~Federal ~~Big~~Government ~~Beautiful~~Shutdown ~~Bill~~— ~~(OBBB)~~Congress —was ~~The~~unable ~~OBBB~~to ~~was~~pass ~~signed~~a ~~into~~new ~~law~~spending onpackage ~~July~~before 4October 1, 2025., ~~The~~and ~~OBBB~~as ~~implements~~a ~~numerous~~result, the federal ~~reforms~~government ~~targeting~~shut ~~Medicaid~~down. ~~financing,~~At ~~eligibility~~this time, ~~and~~we ~~payment~~anticipate ~~structures.~~minimal ~~The~~impact ~~following~~on ~~provisions~~our ofbusinesses ~~the~~as ~~OBBB~~both ~~are~~Medicare ~~expected~~and toMedicaid ~~impact~~are ~~Medicaid~~mandatory ~~reimbursement~~health ~~mechanisms~~program ~~and~~payments ~~enrollment~~that ~~dynamics~~continue ~~relevant~~even toduring ~~our~~a ~~business.~~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.

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.

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.

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~~Reduced~~Revisions ~~Federal~~to ~~Contributions~~State-Directed Payments (SDPs) — Prior to ~~State~~the OBBB’s passage, state Medicaid ~~Programs~~programs –could ~~Beginning~~require inMedicaid ~~fiscal~~managed ~~year~~care ~~2030~~organizations (MCOs) to pay providers certain rates, ~~the~~make ~~OBBB~~uniform ~~requires~~rate ~~HHS~~increases, or to ~~reduce~~use ~~federal~~certain ~~financial~~payment ~~contributions~~methods. toThese ~~Medicaid~~state-mandated ~~programs~~payments inby ~~states~~MCOs ~~that~~were ~~identified~~known ~~improper~~as ~~payments~~SDPs, tothe ~~ineligible~~upper ~~individuals~~limits orfor ~~overpayments~~which togenerally ~~eligible~~were ~~individuals~~higher than the highest Medicare payment rate for those services, which is used in calculating Medicaid fee-for-service supplemental payments. The OBBB ~~expanded~~limits ~~the~~total ~~scope~~payments ofunder ~~these~~existing ~~improper~~CMS-approved ~~payments~~SDPs to ~~include~~current ~~payments~~levels ~~where~~and ~~insufficient~~caps ~~information~~future isSDPs ~~available~~based toon ~~confirm~~whether the ~~recipient~~state has expanded its Medicaid program under the ACA. SDPs approved prior to the OBBB’s ~~eligibility~~implementation ~~for~~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. WeFor doMedicaid expansion states, new SDPs may not ~~anticipate~~exceed ~~this~~100% ~~provision~~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 ~~impact~~the ~~our~~Medicaid ~~revenue~~fee-for-service payment rate. This provision could reduce overall state Medicaid financing flexibility, increasing the risk of lower SNF reimbursement rates.

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 -– ItThe isfull effect of the OBBB on state budgets remains uncertain, atparticularly ~~this~~given ~~point~~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~~. However~~, ~~one~~some ~~potential~~states ~~risk~~have toalready ~~our~~taken ~~revenue~~legislative isand ~~due~~regulatory actions to address the ~~fact~~provisions ~~that~~of the ~~states~~OBBB ~~will~~and ~~simply~~its ~~have~~potential ~~less~~impact. ~~money~~For ininstance, ~~general.~~on ~~Therefore~~September 17, we2025, ~~anticipate~~California ~~states~~enacted ~~being~~Senate ~~forced~~Bill to105, ~~make~~a ~~difficult~~comprehensive ~~decisions~~budget inbill for the ~~future~~2025-2026 ~~about~~fiscal ~~where~~year. ~~those~~This ~~funds~~legislation ~~are~~allocates ~~directed.~~funding Weand ~~will~~makes ~~continue~~budgetary toadjustments ~~monitor~~across ~~any~~various ~~such~~state ~~developments~~agencies, ~~and~~with ~~advocate~~notable ~~accordingly~~emphasis aton ~~the~~specific ~~federal~~areas. Among its provisions, Senate Bill 105 designates targeted funding for the state’s ~~and~~Medicaid ~~local~~program, ~~levels~~Medi-Cal, to ensure alignment with the OBBB.

~~Medicare~~Similarly, ~~Annual~~Colorado ~~Payment~~enacted ~~Rule~~Senate —Bill On0001 ~~April~~on 11August 28, 2025,. ~~CMS~~This ~~issued~~law establishes a process for the ~~SNF~~governor ~~Prospective~~to ~~Payment~~implement ~~System~~spending ~~(PPS)~~reductions ~~Fiscal~~if ~~Year~~the ~~(FY)~~state ~~2026~~is ~~Proposed~~unable ~~Rule~~to ~~with~~meet its fiscal obligations. It also requires the ~~following~~governor to submit proposed ~~impacts:~~spending reduction plans to a legislative budget committee, which is responsible for advising the governor on these matters.

~~Impact~~Overall, towe ~~payment~~anticipate ~~rates~~more —states ~~CMS~~may isface ~~required~~challenging tochoices ~~calculate~~regarding antheir ~~annual~~state ~~Medicare market-basket update to the payment rates. For fiscal year 2026~~budgets, ~~starting~~which ~~on October 1, 2025 and~~ will ~~run through September 30, 2026, CMS proposes to~~ increase the ~~SNF~~risk ~~PPS~~of ~~rate~~lower bySNF ~~2.8%.~~reimbursement ~~The net increase is based on a 3~~rates.0% ~~market~~We ~~basket~~will ~~adjustment~~continue to ~~account~~monitor ~~for~~any ~~inflation,~~such ~~plus~~developments ~~a 0.6% forecast error adjustment~~ and aadvocate ~~negative~~accordingly ~~0.8%~~at ~~productivity adjustment. This increase does not include~~ the ~~SNF Value-Based Purchasing (VBP) Program reductions for certain SNFs subject to the net reduction in payments under the SNF VBP. The SNF PPS FY 2026 Proposed Rule also includes updates to the PDPM~~federal, ~~with~~state ~~CMS proposing revisions to ICD-10 code mappings to ensure alignment with current clinical guidance~~ and ~~support~~local more accurate assignment of clinical categories. These updates are intended to improve coding accuracy and better reflect patients’ primary diagnoses during SNF stays, potentially impacting reimbursement levels ~~and case-mix classifications for the skilled nursing facilities operated by our independent subsidiaries~~.

~~Impact~~Medicare toAnnual ~~the~~Payment ~~SNF~~Rule ~~VBP Program~~ — ~~Proposed~~On ~~changes~~July to31, ~~the~~2025, ~~SNF~~CMS ~~VBP~~released ~~Program within~~ the ~~SNF~~final ~~PPS~~rule ~~FY 2026 Proposed Rule seek to finalize scoring methodology~~ for the SNF ~~Within-Stay~~Prospective ~~Potentially~~Payment ~~Preventable~~System ~~Readmission~~ (~~SNF WS PPR~~PPS) ~~measure,~~Fiscal ~~establish~~Year ~~performance~~(FY) ~~standards~~2026 ~~for~~Final ~~fiscal~~Rule ~~years~~outlining ~~2028 and 2029, and adopt a reconsideration process for review and correction disputes. CMS also proposes to eliminate~~ the ~~Health~~following ~~Equity~~key ~~Adjustment to simplify the program’s incentive structure.~~ changes:

~~Impact~~FY 2026 Final Updates to the SNF ~~Quality~~Payment ~~Reporting~~Rates ~~Program~~— ~~(QRP)~~For —fiscal ~~With~~year ~~respect~~2026, towhich ~~the~~begins ~~SNF~~on ~~QRP~~October 1, ~~CMS~~2025 ~~proposes~~and toends ~~remove~~on ~~four~~September ~~standardized~~30, ~~patient~~2026, ~~assessment~~CMS ~~data~~has ~~elements~~finalized ~~related~~a 3.2% increase to ~~Social~~SNF ~~Determinants~~PPS ofpayment ~~Health~~rates. ~~(SDOH)~~This ~~from~~increase ~~the~~is ~~Minimum~~based ~~Data~~on ~~Set~~the ~~(MDS),~~final ~~including~~SNF ~~those~~market ~~for~~basket ~~living~~of ~~situation~~3.3%, ~~food,~~plus ~~and~~a ~~utilities,~~0.6% ~~effective~~market ~~October~~basket 1,forecast ~~2025.~~error ~~The~~adjustment, ~~SNF~~and ~~PPS~~a FYnegative ~~2026~~0.7% ~~Proposed~~productivity ~~Rule~~adjustment. ~~also~~This ~~proposes~~increase todoes ~~expand~~not incorporate the ~~QRP~~SNF ~~reconsideration~~Value-Based ~~process~~Purchasing by(VBP) ~~allowing~~Program ~~SNFs~~reductions tofor ~~request~~certain ~~deadline~~SNFs ~~extension~~subject ~~and~~to ~~expanding~~ the ~~bases~~net ~~for~~reduction ~~CMS~~in topayments ~~grant~~under ~~such~~the ~~extension~~SNF ~~requests~~VBP.

~~Other~~Patient-Driven ~~Proposed~~Payment ~~Impacts~~Model —(PDPM) ~~Finally,~~ICD-10 ~~the~~code ~~SNF~~mappings ~~PPS~~– FYCMS ~~2026~~finalized ~~Proposed~~several ~~Rule~~technical ~~includes~~revisions ato ~~Request~~the ~~for~~code ~~Information~~mappings ~~seeking~~used ~~public comment on approaches~~ to ~~streamline~~classify ~~Medicare~~patients ~~regulations~~under ~~and~~the ~~reduce provider administrative burden~~PDPM. ~~Any~~These ~~material~~revisions ~~changes~~are ~~resulting~~intended ~~from~~to ~~this~~enhance ~~rule~~the ~~could~~accuracy ~~directly~~of ~~affect~~patient ~~our SNF operations~~classification, ~~particularly~~payment incalculations ~~areas~~and ~~such~~coding aspractices ~~reimbursement~~under ~~methodology,~~the ~~compliance reporting, and quality-based performance evaluations~~PDPM.

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 3.62% increase over the 2025 conversion factor.

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~~Payment~~SNF ~~Adjustments~~Quality Reporting Program (QRP) — CMS ~~plans~~has announced changes to ~~reduce~~the ~~payments~~QRP bythat ~~2.5%~~will take effect for ~~certain~~residents ~~services~~admitted ~~that~~on ~~aren’t~~or ~~based~~after onOctober ~~time~~1, ~~(like~~2025, ~~some~~impacting ~~therapy~~the ~~services)~~FY 2027 SNF QRP. Specifically, ~~assuming~~four ~~providers~~standardized ~~are~~patient ~~becoming~~assessment ~~more~~data ~~efficient~~elements within the Social Determinants of Health (SDOH) category will be removed. ~~This~~Additionally, ~~cut~~CMS ishas ~~meant~~updated tothe ~~balance~~policy ~~out~~and ~~other~~process ~~Medicare~~for ~~spending~~submitting ~~increases~~reconsideration requests, including amendments and codification of these procedures.

~~CMS’s~~SNF ~~proposed~~Value-Based ~~changes~~Purchase ~~may~~(VBP) ~~influence~~Program ~~how~~— ~~SNFs~~For ~~deliver~~the FY 2028 and ~~bill~~FY ~~for~~2029 ~~physician~~program ~~and~~years, ~~ancillary~~CMS ~~services.~~has ~~The~~established ~~scope~~performance ofstandards ~~reimbursable~~to ~~therapy~~meet ~~and~~the ~~remote~~statutory ~~care~~notice ~~services~~requirements. ~~may~~Additionally, ~~increase~~starting with the FY 2028 program year, ~~but~~CMS ~~payment~~will ~~levels~~implement ~~may~~the previously established scoring methodology for the SNF Within-Stay Potentially Preventable Readmission (SNF WS PPR) measure, which will be ~~affected~~included in the ~~future,~~program’s ~~whether~~measure ~~positively~~set orfor ~~negatively,~~the byfirst ~~broader~~time. ~~efficiency~~To simplify the scoring process and ~~practice~~provide ~~cost~~clearer ~~assumptions.~~incentives ~~SNFs~~for ~~offering~~skilled ~~telehealth-based~~nursing ~~care~~facilities or(SNFs) ~~participating~~to inenhance the quality of care ~~coordination~~for ~~models~~all ~~may~~residents, ~~benefit~~CMS ~~from~~has ~~expanded~~decided ~~flexibility~~to ~~and~~remove ~~new~~the ~~billing~~Health ~~pathways~~Equity Adjustment. ~~The~~Furthermore, ~~cumulative~~beginning ~~impact~~with ofthe ~~these~~FY ~~changes~~2027 ~~may~~program ~~also~~year, ~~introduce~~CMS ~~operational~~will ~~complexity~~introduce ~~and~~a ~~compliance~~reconsideration ~~requirements~~process. WeThis ~~are~~process ~~actively~~will ~~evaluating~~allow ~~the~~SNFs ~~proposal~~to ~~and~~request ~~its~~reconsideration ~~potential~~if ~~operational~~they are dissatisfied with CMS’s decision regarding a review and ~~financial~~correction ~~implications~~request.

~~Improving~~Medicare ~~Care~~Part ~~and~~B ~~Access~~Fee toSchedule ~~Nurses~~— ~~Act~~On (IJuly ~~CAN Act) – I CAN Act was introduced to the Senate on February 13~~14, 2025, ~~and~~CMS ~~expands~~issued the ~~role~~2026 ofMedicare ~~nurse~~Physician ~~practitioners~~Fee Schedule (~~NPs~~PFS) inProposed ~~SNFs and nursing homes by allowing them to certify~~Rule, ~~oversee,~~which ~~and~~outlines ~~supervise~~significant ~~care~~changes ~~under~~aimed ~~Medicare~~at ~~and~~modernizing ~~Medicaid without requiring physician oversight~~Medicare, ~~subject~~improving ~~to state law. If enacted it would grant NPs the authority to certify patient admissions, manage~~ care ~~plans~~quality, and ~~provide~~reducing ~~supervision~~unnecessary ~~in SNFs and intermediate care facilities~~spending. 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.

~~Biden-Harris~~Two ~~Administration's~~Payment ~~Nursing~~Rates ~~Home~~Based ~~Care~~on ~~Priorities~~Advanced —Alternative ~~Prior~~Payment toModel ~~the~~(AAPM) ~~change~~Participation in— ~~Presidential~~For ~~Administration~~the infirst ~~2025~~time, ~~the~~there ~~Biden-Harris~~are ~~Administration~~two ~~sought~~separate ~~reform~~conversion ~~around~~factors ~~reimbursement,~~for ~~staffing~~all ~~levels,~~Medicare-participating ~~standards~~providers ofwhich ~~care,~~impacts ~~increased~~reimbursement ~~transparency~~for ~~and~~therapeutic ~~public~~services ~~disclosure~~(including ofoccupational ~~ownership~~therapy, ~~and~~speech ~~enhanced~~language ~~civil~~therapy, ~~remedies~~and asphysical atherapy), ~~means~~evaluation ofand ~~enforcement~~management ~~against~~services, ~~those~~and ~~facilities~~other ~~that~~services dofurnished ~~not~~in ~~satisfy~~SNFs ~~CMS’s~~covered ~~standards.~~by ~~These~~Medicare ~~rules~~Part ~~are~~B. ~~still~~This inis ~~effect~~required ~~and~~under ~~enforceable. For example,~~ the ~~SNF~~Medicare ~~PPS~~Access FYand ~~2025~~CHIP ~~Final~~Reauthorization ~~Rule~~Act ~~granted~~(MACRA) ~~CMS~~depending ~~greater~~on ~~sanctioning~~whether ~~authority~~a ~~for~~provider ~~ongoing~~qualifies oras ~~persistent~~a ~~deficiencies~~participant in ~~Medicare-participating~~an ~~SNFs~~AAPM. ~~These~~CMS ~~increased~~proposes ~~sanctioning~~a ~~authorities~~qualifying ~~took~~AAPM ~~effect~~participant inconversion ~~the~~factor ~~2025~~of ~~federal fiscal year~~$33.59, ~~which~~representing ~~began~~a ~~on October 1, 2024~~3.83% ~~With~~increase over the ~~new~~2025 ~~administration,~~conversion itfactor ~~is currently unknown whether any~~ of ~~these rules will be reduced in their scope or application, or whether they will be increased in any respects~~$32.35. The ~~individuals~~non-AAPM ~~appointed~~participant toconversion ~~serve~~factor asis ~~the Secretary of HHS and Director of CMS~~$33.42, ~~respectively,~~a ~~have~~3.31% ~~not~~increase ~~yet~~over ~~provided~~such ~~any~~2025 ~~indication~~conversion ~~of what their priorities for anticipated future actions would be in this area~~factor.

~~CMS~~Payment ~~Minimum~~Adjustments ~~Staffing Standards Final Rule~~ — ~~In April 2024,~~ CMS ~~issued~~intends ~~its~~to ~~final~~decrease ~~rule~~payments ~~establishing~~by ~~minimum staffing standards for skilled nursing facilities (Staffing Rule)~~2.5% ~~The Staffing Rule contains three primary staffing requirements and provides~~ for acertain ~~staggered~~services ~~and~~that ~~phase~~are ~~implementation~~not ~~over~~time-based, ~~the~~such ~~next~~as ~~several~~certain ~~years~~therapy ~~following the Staffing Rule’s publication~~services. The ~~Staffing~~rationale ~~Rule~~is ~~has been met with opposition and legislation to halt its implementation. On April 7, 2025, the U.S. District Court for the Northern District of Texas issued a ruling to vacate it findings~~ that ~~CMS~~providers ~~lacks~~are ~~authority~~expected to ~~issue~~deliver athese ~~regulation~~services ~~that~~more ~~replaces~~efficiently ~~Congress’s~~as ~~preferred~~they ~~minimum~~performed ~~staffing~~them ~~hours~~repeatedly ~~with~~over ~~its own~~time. OnThis ~~July~~reduction 4,is ~~2025,~~designed ~~the~~to ~~OBBB~~balance ~~was~~out ~~signed~~other ~~into~~areas ~~law,~~of ~~which~~Medicare ~~prohibits~~spending ~~HHS from implementing, administering, or enforcing the Staffing Rule until October 1, 2034~~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.

~~Medicare~~CMS’s ~~presently~~proposed ~~accounts~~changes ~~for~~could ~~approximately~~impact ~~25.2%~~how ofSNFs ~~our~~deliver ~~skilled~~and ~~nursing~~bill ~~services~~for ~~revenue~~physician ~~year-to-date,~~and ~~being~~ancillary ~~our second-largest revenue payor~~services. The ~~Medicare~~scope ~~program~~of ~~and~~reimbursable ~~its~~therapy ~~reimbursement rates~~ and ~~rules~~remote ~~are~~care ~~subject~~services tomay ~~frequent~~expand, ~~change.~~but ~~These~~future ~~include~~payment ~~statutory~~levels ~~and~~could ~~regulatory changes~~fluctuate, ~~rate~~positively ~~adjustments, administrative~~ or ~~executive orders and government funding restrictions~~negatively, ~~all~~based ofon ~~which~~broader ~~may~~assumptions ~~materially~~about ~~adversely~~efficiency ~~affect~~and ~~the~~practice ~~rates~~cost. atSNFs ~~which~~that ~~Medicare~~deliver ~~reimburses~~telehealth-based uscare ~~for~~or ~~our~~participate ~~services.~~in ~~Budget~~care ~~pressures~~coordination ~~often~~models ~~lead~~may ~~the~~benefit ~~federal~~from ~~government~~expanded toflexibility ~~reduce~~and ornew ~~place~~billing ~~limits~~pathways. onHowever, ~~reimbursement~~these ~~rates~~changes ~~under~~may ~~Medicare.~~also ~~Implementation~~introduce ofadded ~~these~~operational complexity and ~~other~~new ~~types~~compliance ofrequirements. ~~measures~~We ~~has~~are inactively ~~the~~evaluating ~~past, and could in~~ the ~~future,~~proposal ~~result~~to inunderstand ~~substantial~~its ~~reductions~~potential ineffects on our ~~revenue~~operations and ~~operating~~financial ~~margins~~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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~~Patient~~Biden-~~Driven~~Harris ~~Payment~~Administration's ~~Model~~Nursing ~~(PDPM)~~Home —Care ~~The~~Priorities ~~SNF~~— ~~PPS~~Prior ~~Rule~~to ~~included~~the achange ~~case~~in ~~mix~~Presidential ~~model~~Administration ~~called~~in ~~PDPM~~2025, ~~that focuses on~~ the ~~patient’s~~Biden-Harris ~~condition~~Administration ~~(clinically~~pursued ~~relevant~~reforms ~~factors)~~related ~~and resulting care needs~~ to ~~determine Medicare~~ reimbursement., ~~PDPM~~staffing ~~utilizes~~levels, ~~clinically~~standards ~~relevant~~of ~~factors~~care, ~~for~~increased ~~determining~~transparency ~~Medicare~~and ~~payment~~public bydisclosure ~~using~~of ~~diagnosis~~ownership, ~~codes~~ and ~~other~~enhanced ~~patient~~civil ~~characteristics~~remedies as ~~the~~a ~~basis~~means ~~for~~of ~~patient~~enforcement ~~classification.~~against ~~PDPM~~those ~~makes~~facilities ~~effective~~that ~~use~~do ofnot ~~five~~satisfy ~~case-mix~~CMS’s ~~adjusted~~standards. ~~payment~~These ~~components:~~regulations ~~physician~~remain ~~therapy,~~active ~~occupational~~and ~~therapy,~~enforceable. ~~speech~~For ~~language pathology~~instance, ~~nursing~~the ~~and~~SNF ~~social~~PPS ~~services~~FY ~~and~~2025 ~~non-therapy~~Final ~~ancillary~~Rule ~~services.~~expanded ItCMS's ~~also~~authority ~~uses~~to aimpose ~~sixth~~sanctions ~~non~~on Medicare-~~case~~participating ~~mix~~SNFs ~~component~~with toongoing ~~cover~~or ~~utilization~~repeated ofdeficiencies, ~~SNFs'~~with ~~resources~~these ~~that~~enhanced doenforcements ~~not~~taking ~~vary~~effect ~~depending~~at onthe ~~resident~~start ~~characteristics.~~of ~~PDPM~~the is2025. ~~intended~~These toincreased ~~achieve~~sanctioning aauthorities ~~more~~took ~~value-based,~~effect ~~unified~~in ~~post-acute~~the ~~care~~2025 ~~payment~~federal ~~system.~~fiscal ~~For example~~year, ~~PDPM~~which ~~adjusts~~began ~~Medicare payments based~~ on ~~each~~October ~~aspect~~1, of2024. aWith ~~resident’s~~the ~~care.~~publication ~~Under~~of the SNF PPS ~~PDPM~~FY2026 ~~system~~Final Rule, it appears the ~~payment~~new toadministration ~~SNFs~~does ~~and~~not ~~nursing~~intend ~~homes~~to ismake ~~based~~significant ~~heavily~~changes onto the ~~patient’s~~scope, ~~condition~~impact, ~~rather~~or ~~than~~enforcement ~~the~~of ~~specific~~these ~~services~~existing ~~provided by each SNF~~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.

CMS revised the calculation of its five-star ratings for the Nursing Home Compare website. Under this methodology, points are assigned to a SNF based on its performance across six measures: (1) case-mix adjusted total nurse staffing levels (including registered nurses, licensed practical nurses, and nursing aides), measured by hours per resident per day; (2) case-mix adjusted registered nurse staffing levels, measured by hours per resident per day; (3) case-mix adjusted total nurse staffing levels (including registered nurses, licensed practical nurses, and nursing aides), measured by hours per resident day on the weekend; (4) total nurse turnover, defined as the percentage of nursing staff that left the nursing home over a 12-month period; (5) registered nurse turnover, defined as the percentage of registered nursing staff that left the nursing home over a 12-month period; and (6) administrator turnover, defined as the percentage of administrators that left the nursing home over a 12-month period. These six measures will be measured on a quarterly basis.

These six new measures were included in the five-star rating starting in October 2022. In addition, CMS also implemented a planned increase to the quality measure reporting thresholds, increasing each threshold by one-half of the average improvement of quality measure scores since CMS last set quality measure thresholds. Going forward, CMS plans to implement similar rating threshold increases every six months.

CMS has continued to refine the QRP including various measurements such as the adoption of a process measure for influenza vaccination coverage among healthcare personnel within SNFs and a Discharge Function Score (DC Function) measure, which determines the functional condition of residents by examining the proportion of SNF residents who achieve or surpass a projected discharge functionality score. The assessment includes consideration of mobility and self-care, utilizing data from the Minimum Data Set (MDS). The DC Function 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 will adopt two measures for the SNF QRP starting in FY 2026. First, CMS will raise the Data Completion Thresholds for the MDS. SNFs must report required quality measure data and standardized resident assessment data gathered using the MDS for at least 90% of the assessments they submit to CMS. SNFs who fail to meet this requirement will be subject to a 2.0% reduction on their applicable fiscal year payment starting in FY 2026. Second, CMS will adopt the Patient/Resident COVID-19 Vaccine metric. This metric highlights the number of patient stays in which SNF patients received the COVID-19 vaccine.

CMS’s SNF PPS FY 2025 Final Rule adopts several updates to the SNF QRP aimed at enhancing the integration of social determinants of health (SDOH) into patient assessments and ensuring the accuracy of reported data. Starting in fiscal year 2027, CMS will introduce four new SDOH items related to living situation, food security, and utility access, and modify an existing item on transportation availability in the MDS. Additionally, CMS requires that SNFs participating in the SNF QRP undergo a data validation process similar to that already implemented in the SNF Value-Based Purchasing (VBP) Program. Also beginning in fiscal year 2027, SNFs participating in the SNF QRP program must participate in a validation program similar to that used for SNFs participating in the SNF VBP Program.

Table of Contents

~~Medicare~~CMS ~~Annual~~revised ~~Payment~~the ~~Rule~~calculation —of ~~Refer~~its five-star ratings for the Nursing Home Compare website. Under this methodology, points are assigned to ~~Proposed~~a SNF based on its performance across six measures: (1) case-mix adjusted total nurse staffing levels (including registered nurses, ~~Anticipated~~licensed practical nurses, and ~~Recently~~nursing ~~Issued~~aides), ~~Rulemaking~~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 ~~Administrative~~nursing ~~Actions~~aides), ~~above~~measured ~~for~~by ~~additional~~hours ~~information~~per resident day on the ~~SNF~~weekend; ~~PPS~~(4) FYtotal ~~2026~~nurse ~~Proposed~~turnover, ~~Rule~~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.

~~Final~~These ~~Rule~~six ~~Fiscal~~measures ~~Year~~were ~~2025~~included ~~SNF~~in ~~PPS~~the five-star ~~CMS'~~rating ~~final~~starting ~~rule for the SNF PPS for FY 2025 (SNF PPS FY 2025 Final Rule) results~~ in ~~a net 4.2% increase in SNF payments under Medicare Part A in fiscal year 2025, which started on~~ October ~~1, 2024 and runs through September 30, 2025~~2022. ~~The~~In ~~net increase was based on the SNF market basket of 3.0%~~addition, ~~plus~~CMS aalso ~~1.7%~~implemented ~~market basket forecast error adjustment, and~~ a ~~negative~~planned ~~0.5% productivity adjustment. This~~ increase ~~does not include the SNF VBP reductions for certain SNFs subject~~ to the ~~net~~quality ~~reduction~~measure inreporting ~~payments~~thresholds, ~~under~~increasing ~~the~~each ~~SNF~~threshold ~~VBP.~~by ~~CMS~~one-half ~~also~~of ~~revised~~ the ~~SNF~~average ~~market~~improvement ~~basket~~of ~~base~~quality ~~year~~measure ~~from~~scores ~~the~~since ~~2018~~CMS ~~base~~last ~~year~~set toquality ~~the~~measure 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 correctionthresholds. ~~Within~~Going ~~this rule~~forward, CMS ~~also~~plans ~~updated~~to ~~the~~implement ~~SNF~~similar ~~PPS~~rating ~~wage~~threshold ~~index~~increases ~~using~~every ~~core-based~~six ~~statistical areas (CBSAs) to reflect regional wage costs~~months.

~~The~~CMS ~~SNF~~has ~~PPS~~continued ~~FY 2025 Final Rule also includes significant enhancements~~ to ~~CMS’s~~refine ~~enforcement~~the ~~capabilities~~QRP ~~within~~including ~~nursing~~various ~~homes,~~measurements ~~aiming~~such toas ~~reinforce~~ the ~~safety~~adoption ~~and quality~~ of ~~care.~~a ~~The~~process ~~rule~~measure ~~broadens~~for ~~CMS’s~~influenza ~~ability~~vaccination tocoverage ~~use~~among ~~financial~~healthcare ~~penalties~~personnel towithin ~~ensure~~SNFs ~~sustained~~and ~~remediation~~a ofDischarge ~~health~~Function ~~and~~Score ~~safety~~(DC ~~infractions~~Function) measure, ~~thereby~~which ~~motivating~~determines ~~facilities~~the tofunctional ~~quickly~~condition ~~comply~~of ~~with~~residents ~~CMS~~by ~~regulations.~~examining ~~The rule eliminates~~ the ~~restrictions~~proportion of ~~per~~SNF ~~instance~~residents ~~(PI)~~who ~~for~~achieve ~~isolated violations~~ or ~~per~~surpass ~~day~~a ~~(PD)~~projected ~~for~~discharge ~~ongoing~~functionality ~~non-compliance~~score. ~~restrictions,~~The ~~allowing~~assessment ~~for~~includes ~~more~~consideration ~~flexible imposition~~ of ~~both~~mobility PD and ~~PI penalties~~self-care, ~~which~~utilizing ~~would~~data ~~not~~from ~~exceed~~the ~~statutory~~Minimum ~~daily~~Data ~~limits~~Set (MDS). ~~This~~The ~~change~~DC isFunction ~~intended~~replaces tothe ~~provide~~current ~~CMS~~process ~~with enhanced tools to address violations more effectively~~ and ~~reflect~~is ~~the~~in ~~severity~~effect offor the ~~impact~~FY on2025 ~~residents’~~SNF ~~health and safety~~QRP. ~~Additionally,~~The ~~the~~ SNF PPS FY ~~2025~~2024 ~~includes~~Final ~~updates~~Rule toalso modified the SNF QRP’s toHealthcare ~~better~~Professional ~~account~~(HCP) ~~for~~Covid ~~social~~Vaccine ~~determinants~~Measure. ofThe ~~health,~~measure ~~adding~~will ~~items~~track tothe beproportion ~~reported~~of ~~regarding~~healthcare ~~these~~staff ~~social~~vaccinated ~~determinants~~for ofCOVID-19 ~~health—living situation, food,~~ and ~~utilities—in~~have ~~the~~kept ~~minimum~~their ~~data~~vaccination ~~set~~status ~~each~~current ~~SNF~~per isthe ~~required~~CDC ~~to report to CMS~~recommendations. The SNF PPS FY ~~2025~~2024 ~~also~~Final ~~contains~~Rule analso ~~update~~removed to the ~~SNF~~Application ~~Value-Based Purchasing (VBP) Program, including how its measurements are retained or removed from use in evaluating quality~~ of ~~care,~~Functional ~~updates~~Assessment/Care toPlan ~~technical~~ measures sofrom ~~that~~the ~~measures~~SNF ~~can be updated using a sub-regulatory process, and administrative policies for updating and correcting data CMS relies on in calculating its measurements~~QRP.

~~2025~~Under ~~Home~~the ~~Health~~SNF ~~and~~PPS ~~Hospice~~FY ~~Payment~~2024 ~~Rules~~Final ~~Affecting~~Rule, ~~SNFs —~~ CMS’s ~~final~~adopted ~~payment~~two ~~rules~~measures for ~~other~~the ~~modalities~~SNF ofQRP ~~care~~starting ~~delivery~~in ~~also~~FY ~~affect~~2026. First, CMS raised the ~~operations~~Data ofCompletion ~~SNFs~~Thresholds for the MDS. ~~The~~SNFs ~~2025~~must ~~Home~~report ~~Health~~required ~~PPS~~quality ~~Final~~measure ~~Rule~~data ~~requires~~and ~~long-term~~standardized ~~care~~resident ~~facilities,~~assessment ~~including~~data ~~SNFs,~~gathered tousing ~~make~~the MDS for at least ~~weekly~~90% ~~reports~~of the assessments they submit to CMS. ~~regarding~~SNFs ~~respiratory~~who ~~illnesses,~~fail ~~including~~to ~~facility~~meet ~~census,~~this ~~resident~~requirement ~~vaccination~~will ~~status~~be ~~for~~subject ~~specified~~to ~~respiratory~~a ~~illnesses,~~2.0% ~~confirmed~~reduction ~~resident~~on ~~cases~~their ~~and~~applicable ~~residents~~fiscal ~~hospitalized~~year ~~from~~payment ~~such~~starting ~~illnesses~~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.

~~Final~~CMS’s ~~Rule Fiscal Year 2024~~ SNF PPS ~~— The SNF PPS~~ FY ~~2024~~2025 Final Rule, ~~which~~adopted ~~was~~several ~~effective~~updates ~~October~~to ~~1, 2023, updated~~ the ~~Medicare payment rates and modified the~~ SNF QRP ~~and~~aimed ~~the~~at ~~SNF~~enhancing ~~VBP Program. The SNF PPS FY 2024 Final Rule finalized~~ the ~~rates~~integration toof besocial ~~paid~~determinants inof ~~fiscal~~health ~~year~~(SDOH) ~~2024,~~into ~~which~~patient ~~started~~assessments ~~on October 1, 2023~~ and ~~ran~~ensuring ~~through~~the ~~September~~accuracy ~~30, 2024. The net effect~~ of ~~these~~reported ~~changes was an overall 4~~data.0% ~~increase~~Starting in ~~payments~~fiscal toyear ~~SNFs~~2027, inCMS FYwill ~~2024.~~introduce ~~The~~four ~~increase~~new ~~included~~SDOH aitems ~~6.4%~~related ~~net market basket update~~ to ~~the~~living ~~payment rates of 3.0%~~situation, ~~plus~~food ~~a 3.6% market basket forecast error adjustment~~security, ~~less~~and autility ~~0.2% productivity adjustment~~access, asand ~~well~~modify asan aexisting ~~negative~~item ~~2.3%~~on ~~adjustment~~transportation availability in the ~~FY 2024 SNF PPS rates due to the second phase of the Patient Driven Payment Model (PDPM) parity adjustment recalibration~~MDS. ~~In addition~~Additionally, ~~this~~CMS ~~final~~requires ~~rule~~that ~~also~~SNFs ~~updates~~participating ~~the SNF QRP for FY 2024 and future years, including the adoption of two new quality reporting measures, modification of one measure and removal of three measures resulting~~ in ~~public reporting of four QRP measures. Additionally,~~ the SNF ~~PPS~~QRP FYundergo ~~2024~~a ~~Final~~data ~~Rule~~validation ~~made~~process ~~changes~~similar to ~~the~~that ~~SNF~~already ~~VBP~~implemented ~~Program,~~in ~~specifically adopting four new measures:~~ the nursing staff turnover measure, the discharge function score measure, the long stay hospitalization measure per 1,000 resident days and the percent of residents experiencing one or more falls with a major injury (long stay); the existing SNF 30Value-~~day~~Based ~~all-cause~~Purchasing ~~readmission measure~~ (~~SNFRM~~VBP) ~~is replaced with the SNF within stay potentially preventable readmissions measure beginning in FY 2028~~Program.

~~SNF~~Starting ~~PPS~~in FY2026, ~~2024~~SNFs ~~Final~~participating ~~Rule~~in ~~adopted~~ the ~~Nursing Staff Turnover (NST) measure for the~~ SNF ~~VBP~~QRP program ~~beginning~~will ~~with~~be ~~the~~required FYto ~~2026~~take ~~program~~part ~~year.~~in ~~This~~a isvalidation aprogram ~~structural~~similar ~~measure~~to that ~~has~~used ~~been~~for ~~collected~~SNFs ~~and~~participating ~~publicly~~in ~~reported~~the onSNF ~~Care~~VBP ~~Compare,~~Program. ~~and~~Each ~~the~~year, ~~measure~~1,500 ~~assesses~~SNFs ~~the~~will ~~stability~~be ofrandomly ~~the~~chosen ~~staffing~~to ~~within~~submit aMDS ~~SNF~~records ~~using~~for ~~nursing staff turnover~~review. Facilities ~~The~~selected ~~NST~~for ~~measure~~this ~~uses~~audit ~~facility-reported,~~must ~~electronic~~provide ~~data~~the ~~from~~requested ~~CMS’~~medical ~~Payroll-Based~~chart ~~Journal~~documentation ~~(PBJ)~~within ~~system~~45 tocalendar ~~calculate~~days ~~annual~~of ~~turnover~~notification; ~~rates~~failure ~~for~~to ~~nursing~~do ~~staff,~~so ~~including~~will ~~RNs,~~result ~~LPNs,~~in noncompliance and ~~nurse~~a ~~assistants.~~2% ~~Facilities~~reduction ~~began reporting this measure~~ in FYMedicare ~~2024,~~reimbursement ~~with~~for ~~payment~~that ~~effects~~fiscal ~~beginning in FY 2026~~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.

Table of Contents

~~The~~Final ~~NST~~Rule ~~measure~~Fiscal ~~looks~~Year at2025 ~~six~~SNF ~~consecutive~~PPS — ~~quarters~~Starting ofon ~~data.~~October It1, ~~starts~~2024 ~~with~~through aSeptember ~~baseline~~30, ~~quarter~~2025, ~~and~~CMS' final rule for the ~~first~~SNF ~~two~~PPS ~~quarters~~for ofFY ~~the~~2025 ~~performance~~(SNF ~~period~~PPS toFY ~~identify~~2025 ~~eligible~~Final ~~employees~~Rule) results in a net 4.2% ~~Then,~~increase ~~uses~~in ~~the~~SNF ~~next~~payments ~~four~~under ~~quarters~~Medicare toPart ~~find~~A in fiscal year 2025. The net increase was based on the ~~number~~SNF ofmarket ~~employment~~basket ~~cycles~~of ~~that~~3.0%, ~~ended~~plus ina ~~turnover~~1.7% ~~Finally~~market basket forecast error adjustment, ~~the~~and ~~data~~a ~~from~~negative ~~the~~0.5% ~~sixth~~productivity ~~quarter~~adjustment. isThis ~~validated~~increase todoes ~~identify~~not ~~gaps~~include inthe ~~days~~SNF ~~worked~~VBP ~~that~~reductions ~~began~~for incertain SNFs subject to the ~~last~~net 60reduction ~~days~~in ofpayments under the ~~fifth~~SNF ~~quarter~~VBP. ~~used~~CMS ~~for~~also revised the ~~measure.~~SNF ~~The~~market ~~measure~~basket ~~score~~base isyear ~~then~~from ~~calculated~~the by2018 ~~comparing~~base year to the ~~total~~current ~~number~~2022 ofbase ~~eligible~~year ~~employees~~and ~~with~~updated ~~60-day~~the ~~gaps~~payment inrates ~~working~~used ~~during~~under the ~~specified~~SNF ~~periods.~~PPS ~~After~~based ~~submission~~on the FY 2025 market basket increase factor, ~~CMS~~which ~~may~~is ~~audit~~adjusted by both the ~~data~~productivity adjustment and ifforecast ~~discrepancies~~error ~~are~~correction. ~~found~~Within this rule, ~~the~~CMS ~~consequences~~also ~~may~~updated ~~include~~the ~~penalties,~~SNF ~~decreased~~PPS ~~ratings~~wage ~~and~~index ~~suppression~~using ofcore-based ~~metrics~~statistical ~~for~~areas ~~the~~(CBSAs) ~~trailing~~to 6reflect ~~quarters.~~regional wage costs.

~~Sequestration~~Home ofHealth ~~Medicare~~and ~~Rates~~Hospice —Payment ~~The~~Rules ~~Budget~~Affecting ~~Control~~SNFs ~~Act~~— ofCMS’s ~~2011~~final ~~requires~~payment arules ~~mandatory,~~for ~~across~~other ~~the~~modalities ~~board~~of ~~reduction~~care indelivery ~~federal~~also ~~spending,~~affect ~~called~~the ~~sequestration.~~operations ~~Medicare FFS claims with dates~~ of ~~service or dates of discharge on or after April 1, 2013 incur a 2~~SNFs.0% ~~reduction in Medicare payments through at least 2023, unless Congress takes further action.~~ Under the ~~Consolidated~~2025 ~~Appropriations~~Home ~~Act~~Health ofPPS ~~2023~~Final ~~(CAA 2023)~~Rule, ~~a further 4.0% cut to Medicare spending that would have been required under the Statutory Pay~~long-~~As-You-Go~~term ~~Act~~care ~~of 2010 (PAYGO) was waived for fiscal years 2023 and 2024. Instead~~facilities, 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)~~SNFs, ~~the~~are ~~sequestration~~required ~~of Medicare FFS claims is expected~~ to ~~take~~submit ~~effect~~at inleast ~~fiscal~~weekly ~~year~~reports ~~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~~CMS ~~the~~on ~~amount~~respiratory ~~paid to physicians under Medicare by 4~~illnesses.~~73%.~~ These ~~MPASA~~reports ~~was~~must ~~referred~~include toinformation ~~the~~such ~~House~~as ~~Ways~~facility ~~and Means Committee and House Committee on Energy and Commerce on October 29~~census, ~~2024,~~resident ~~and~~vaccination ~~referred~~status tofor ~~the~~specified ~~Subcommittee~~respiratory ~~on Health on December 17~~illnesses, ~~2024,~~confirmed ~~with~~resident nocases ~~further~~and ~~action~~residents ~~taken~~hospitalized onfrom ~~the~~such ~~bill, which did not pass into law before the end of the 118th Congress in December of 2024~~illnesses.

~~Skilled~~Sequestration ~~Nursing~~of ~~Facility~~Medicare ~~Value-Based~~Rates ~~Purchasing (SNF-VBP) Program~~ — The ~~SNF-VBP~~Budget ~~Program~~Control ~~rewards~~Act ~~SNFs~~of ~~with~~2011 ~~incentive~~requires ~~payments~~a ~~based~~mandatory, onacross the ~~quality~~board ofreduction ~~care~~in ~~they~~federal ~~provide~~spending, tocalled sequestration. Medicare ~~beneficiaries,~~FFS asclaims ~~measured~~with bydates aof ~~hospital~~service ~~readmissions~~or ~~measure~~dates of discharge on or after April 1, 2013, incur a 2.0% ~~CMS~~reduction ~~annually~~in ~~adjusts~~Medicare ~~its~~payments ~~payment~~through ~~rules~~at ~~for~~least ~~SNFs~~2023, ~~using~~unless ~~the~~Congress ~~SNF-VBP~~takes ~~Program~~further action. ~~The~~Under ~~program~~the ~~also~~Consolidated ~~introduced~~Appropriations ~~quality~~Act ~~measures~~of 2023 (CAA 2023), a further 4.0% cut to ~~assess~~Medicare ~~how~~spending ~~health~~that ~~information~~would ishave ~~shared~~been ~~and~~required ~~adopted~~under ~~several~~the ~~standardized~~Statutory ~~patient~~Pay-As-You-Go ~~assessment~~Act ~~data~~of ~~elements~~2010 ~~that~~(PAYGO) ~~assess~~was ~~factors~~waived ~~such~~for asfiscal ~~cognitive~~years ~~function~~2023 and ~~mental~~2024. ~~status~~Instead, ~~special~~the ~~services~~CAA ~~and~~2023 ~~social~~deferred ~~determinants~~any offurther ~~health~~Medicare sequestration under PAYGO until fiscal year 2025. ~~CMS~~The ~~uses~~CAA ~~regulations~~2023 toalso ~~specify~~offset ~~how~~planned itMedicare ~~measures~~sequestrations ~~the~~that ~~performance~~would ~~for~~have ~~SNFs~~been as ~~well~~high as ~~the~~4.0% ~~data~~and ~~that~~instead ~~SNFs~~maintained ~~are~~fee toschedule ~~report~~cuts toof ~~CMS~~approximately 2.0%. ~~The~~Absent ~~deadlines~~a ~~for~~further ~~baseline~~act ~~period~~by ~~quality~~Congress, ~~measure~~such ~~quarterly~~as ~~reporting~~a ~~and~~consolidated ~~performance~~appropriations ~~periods~~act ~~and~~for ~~standards~~2025 ~~began~~or other bill addressing spending in fiscal year 2025 (including retroactively), the ~~2023~~sequestration ~~program~~of Medicare FFS claims is expected to take effect in fiscal year 2025. ~~The~~On ~~final~~October ~~rule~~29, ~~for~~2024, the ~~fiscal~~Medicare ~~year~~Patient ~~2023~~Access ~~SNF~~and ~~PPS~~Stabilization ~~also~~Act ~~provided~~of ~~for~~2024 ~~SNF-VBP~~(MPASA) ~~program~~was ~~expansion~~introduced ~~beyond~~in the ~~use~~House of ~~its single~~Representatives, ~~all-cause~~seeking ~~hospital~~to ~~readmission~~increase ~~measure~~the amount paid to ~~determine~~physicians ~~payment,~~under ~~with~~Medicare by 4.73%. MPASA was referred to the ~~inclusion~~House ofWays ~~measures~~and inMeans ~~fiscal~~Committee ~~year~~and ~~2026~~House ~~for~~Committee ~~SNF~~on ~~healthcare~~Energy ~~associated~~and ~~infections~~Commerce ~~requiring~~on ~~hospitalization~~October ~~(SNF~~29, ~~HAI)~~2024, and ~~total~~referred ~~nursing~~to ~~hours~~the ~~per~~Subcommittee ~~resident~~on ~~day~~Health ~~measures~~on ~~and~~December in17, ~~fiscal~~2024, ~~year~~with ~~2027~~no further action taken on the bill, which did not pass into law before the ~~discharge~~end toof ~~community~~the ~~post-acute~~118th ~~care~~Congress ~~measure~~in December of 2024. Except for ~~SNFs,~~the ~~which~~increase ~~assess~~in Medicare reimbursement made available under the ~~rate~~OBBB discussed above, as of ~~successful~~September ~~discharges~~30, 2025, there has not been any further legislation proposed to ~~the~~combat ~~community~~this ~~from~~sequestration aof ~~SNF~~Medicare ~~setting~~rates.

~~The~~Skilled ~~SNF~~Nursing ~~PPS~~Facility FYValue-Based ~~2024~~Purchasing ~~Final~~(SNF-VBP) ~~Rule~~Program ~~elected~~— toThe ~~replace the SNFRM measure with the~~ SNF ~~within~~-~~stay~~VBP ~~(WS)~~Program ~~potentially~~incentivizes ~~preventable~~SNFs ~~readmission~~by ~~(PPR)~~awarding ~~measure~~payments ~~beginning~~based inon the FYquality ~~2028~~of ~~program~~care ~~year.~~provided ~~The~~to ~~PPR~~Medicare ~~measure~~beneficiaries, ~~assesses~~primarily ~~the~~measured ~~risk-standardized~~through ~~rate~~hospital ofreadmission ~~unplanned~~rates. ~~and~~Each ~~potentially~~year, ~~avoidable~~CMS ~~readmissions~~adjusts ~~during~~its ~~SNF~~payment ~~stays~~rules for ~~Medicare~~SNFs ~~fee-for-service~~using ~~beneficiaries.~~this ~~The~~program, ~~new~~which ~~SNF~~now WSincludes ~~PPR~~additional ~~measure~~quality ~~refines~~measures ~~the~~such ~~original~~as ~~Skilled~~sharing ~~Nursing~~of ~~Facility~~health ~~30-Day~~information ~~Potentially~~and ~~Preventable~~standardized ~~Readmission~~patient ~~(SNFPPR)~~assessment ~~measure,~~data ~~which~~elements ~~followed~~that ~~the~~evaluate ~~requirements~~cognitive offunction ~~the~~and ~~Protecting~~mental ~~Access~~status, tospecial ~~Medicare~~services ~~Act~~and ~~(PAMA)~~social determinants of ~~2014~~health. ~~The~~CMS ~~refinement~~regulations inoutline both the ~~SNF~~performance WSmetrics ~~PPR~~and ~~measure shifts~~ the ~~observation~~required ~~window~~data ~~from~~reporting afor ~~fixed~~SNFs. ~~30-day~~Reporting ~~post-hospital~~deadlines ~~discharge~~for tobaseline ~~the~~period ~~duration~~and ofperformance ~~the~~periods ~~SNF~~began ~~stay.~~with ~~Moreover,~~ the ~~time~~2023 ~~gap~~program ~~allowed~~year. ~~between~~The ~~the~~FY ~~prior~~2023 ~~inpatient~~SNF ~~discharge~~PPS ~~and~~Final Rule expanded the SNF-VBP ~~admission~~program ~~has~~beyond ~~been~~the ~~extended~~single ~~from~~hospital ~~one~~readmission ~~day~~measure, toadding 30new ~~days.~~metrics ~~These~~for ~~changes,~~fiscal ~~based~~year on2026, ~~feedback~~such ~~from~~as ~~expert~~healthcare ~~panels~~associated ~~and~~infections arequiring ~~2015~~hospitalization ~~partnership,~~(SNF ~~better~~HAI) ~~align~~and ~~the~~total ~~measure~~nursing ~~with~~hours ~~the~~per ~~IMPACT~~resident ~~Act's~~day, ~~provisions~~ and ~~enhance~~in ~~the~~fiscal ~~reliability~~year ~~of tracking preventable readmissions. Additionally~~2027, the ~~SNF~~discharge WSto ~~PPR~~community post-acute care measure's ~~calculations~~for ~~use~~SNFs, ~~two~~which ~~years~~tracks of ~~Medicare~~successful ~~claims~~transitions ~~data~~from SNFs to ~~generate~~community ~~a provider-specific risk-standardized readmission rate~~settings.

~~The~~In ~~SNF~~the ~~PPS~~ FY ~~2025~~2024 SNF PPS Final Rule, ~~adopted~~CMS ~~several~~elected ~~operational~~to ~~and~~replace ~~administrative~~the ~~updates~~SNFRM tomeasure with the SNF ~~VBP~~within-stay ~~Program.~~(WS) ~~The~~potentially ~~SNF~~preventable ~~rule~~readmission ~~adopted~~(PPR) ameasure ~~policy~~starting toin ~~select,~~FY ~~retain~~2028. ~~and~~The ~~remove~~PPR ~~measurements~~measure toassesses ~~ensure~~ the ~~VBP~~risk-standardized ~~Program’s~~rate ~~evaluation~~of ~~metrics remain relevant and effective for assessing care quality~~unplanned, asavoidable ~~well~~readmissions asduring ~~policies~~SNF stays for ~~updating~~Medicare ~~technical measures and policies~~ fee-for-service ~~reviewing~~beneficiaries. ~~and~~This ~~correcting~~new ~~data~~measure ~~CMS~~refines ~~relies~~the ~~upon~~previous to30-Day ~~calculate~~readmission ~~its~~metric ~~measures.~~by ~~The~~extending ~~rule~~the ~~allows~~observation ~~CMS~~period to ~~update~~ the ~~case-mix~~entire ~~methodology~~SNF ~~for~~stay ~~the~~and ~~Total~~increasing ~~Nurse~~the ~~Staffing~~allowable ~~measure,~~gap ~~and~~between ~~its~~hospital ~~policies~~discharge toand ~~allow~~ the ~~review~~SNF ~~and~~admission ~~revise~~to ~~measures,~~30 asdays. ~~well~~These aschanges ~~review~~better ~~and~~align ~~correct~~with ~~data,~~the ~~allow~~IMPACT ~~SNFs~~Act ~~to review~~ and ~~correct~~enhance ~~PBJ~~the ~~data~~reliability ~~from~~of ~~fiscal~~preventable ~~year~~readmissions ~~2026~~tracking. ~~and~~The ~~MDS~~measure ~~data~~uses ~~from~~two ~~fiscal~~years ~~year~~of ~~2027,~~Medicare ~~allowing~~claims ~~CMS~~data to ~~fashion~~calculate ~~more~~provider-specific ~~accurate~~risk-standardized ~~measures~~readmission ~~based on updated data~~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,~~330~~410 for CY ~~2024~~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.

~~Through~~On ~~the~~March ~~end~~9, ~~of CY~~ 2024, ~~certain~~President ofBiden ~~our~~signed ~~Part~~the BConsolidated ~~services~~Appropriations ~~provided~~Act ~~through~~of ~~telehealth would qualify for Medicare reimbursement based on flexibility first provided under the Emergency Waivers~~2024, which ~~added~~included ~~physical~~a ~~therapy,~~2.93% ~~occupational~~update ~~therapy and speech-language pathology~~ to the ~~list~~2024 ofPhysician ~~approved~~Fee ~~telehealth~~Schedule ~~Providers~~(PFS) ~~for~~Conversion ~~the~~Factor ~~Medicare Part B programs provided by a SNF. During the Public Health Emergency~~ (~~PHE~~CF), ~~CMS~~for ~~added~~dates ~~certain PT and OT services to the list~~ of ~~Medicare-covered~~service ~~telehealth~~March ~~services on a temporary basis~~9, ~~some~~2024 ofthrough 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~~This ~~certain~~replaced ~~telehealth flexibilities to continue after~~ the ~~PHE's expiration~~1.25% ~~The~~update ~~American~~provided ~~Relief~~by ~~Act, 2025 extended some but not all telehealth flexibilities for an additional 3 months through March 31, 2025. On March 15, 2025,~~ the ~~President~~Consolidated ~~signed into law the Full-Year Continuing~~ Appropriations ~~and Extensions~~ Act, ~~2025~~of ~~that Congress passed on March 14, 2025, which extended these pandemic-era telehealth waivers for Medicare beneficiaries through September 30, 2025~~2023.

~~Under~~Through the ~~Calendar~~end ~~Year~~of ~~(CY)~~2024, ~~2025~~certain ~~Physician~~of ~~Fee~~our ~~Schedule~~Part ~~(PFS)~~B ~~Final~~services ~~Rule~~provided ~~(2025~~through ~~PFS~~telehealth ~~Final~~would ~~Rule),~~qualify ~~the~~for ~~2.93%~~Medicare ~~increase~~reimbursement tobased ~~the~~on CYflexibility ~~2024~~first ~~PFS~~provided ~~Conversion~~under ~~Factor~~the ~~(CF)~~Emergency ~~expired~~Waivers, ~~and~~which ~~CMS~~added ~~seeks~~physical totherapy, ~~impose~~occupational antherapy ~~estimated~~and ~~0.05%~~speech-language ~~adjustment~~pathology ~~based~~to onthe ~~changes~~list inof ~~work~~approved ~~relative~~telehealth ~~value~~Providers ~~units (RVUs)~~ for ~~certain services. As a result,~~ the ~~2025~~Medicare ~~PFS~~Part ~~Final~~B ~~Rule~~programs ~~implements~~provided aby ~~reimbursement reduction of 2.83%, with~~ a ~~CF of $32~~SNF.~~35,~~ ~~which~~During ~~is a reduction from~~ the CYPublic ~~2024~~Health CFEmergency of(PHE), ~~$33.29.~~CMS ~~The~~added ~~2025~~certain ~~PFS~~PT ~~Final~~and ~~Rule~~OT ~~adopts~~services ~~a 3.6% increase~~ to the ~~threshold~~list ~~for~~of ~~coding~~Medicare-covered ~~modifier~~telehealth ~~requirements~~services ~~for~~on PTa ~~and~~temporary ~~SLP combined~~basis, ~~totaling~~some ~~$2,410~~of ~~for~~which CYwere ~~2025~~made ~~with~~permanent ~~the same threshold~~ for OTuse ~~services.~~and ~~The~~new ~~threshold~~codes ~~for~~were ~~targeted~~added ~~medical review~~ for PT, ~~and~~ OT, ~~(combined)~~or ~~and~~ SLP istelehealth ~~expected~~services—including tosome ~~remain~~“sometimes attherapy” ~~$3,000~~codes ~~through~~that CYwere ~~2027.~~not ~~While~~subject ~~the~~to ~~OBBB~~MPPR. ~~does~~The ~~not~~CAA ~~affect~~2023 ~~the~~extended CYcertain, ~~2025~~but ~~PFS~~not ~~Final Rule~~all, ~~the~~telehealth ~~OBBB~~flexibilities ~~did~~until ~~provide~~December ~~a one-year 2.5% increase to the conversion factor for services provided between January 1~~31, ~~2026 and January 1~~2024, ~~2027.~~allowing Oncertain ~~July~~telehealth ~~14,~~flexibilities ~~2027,~~to ~~CMS~~continue ~~issued~~after the CYPHE's ~~2026~~expiration. ~~PFS~~The ~~Proposed~~American ~~Rule~~Relief ~~(2026 PFS Proposed Rule)~~Act, ~~which~~2025 ~~increases~~extended ~~Medicare~~some ~~reimbursement~~but ~~for~~not ~~provider~~all ~~services~~telehealth byflexibilities afor ~~2.5%~~an ~~increase~~additional in3 ~~the~~months ~~conversion~~through ~~factor~~March as31, ~~set forth in the OBBB~~2025. On ~~The~~March ~~2026~~15, ~~PFS~~2025, ~~Proposed~~the ~~Rule~~President ~~contains~~signed ~~numerous~~into ~~significant~~law ~~changes~~the ~~regarding~~Full-Year ~~payment~~Continuing ~~methods~~Appropriations and ~~models,~~Extensions ~~encourages care coordination~~Act, ~~reduces~~2025 ~~collection~~that ~~and~~Congress ~~reporting~~passed ofon ~~data~~March ~~measurements~~14, ~~and~~2025, ~~continues~~which ~~certain~~extended these pandemic-era telehealth ~~flexibilities~~waivers ~~that~~for ~~began~~Medicare ~~during~~beneficiaries ~~the~~through ~~COVID-19~~September ~~pandemic~~30, 2025.

~~The~~Under the 2025 PFS Final Rule, ~~also~~the ~~adopts~~2.93% aincrease ~~regulatory~~to ~~change~~the ~~that~~2024 ~~allows~~PFS ~~physical~~CF ~~therapy~~expired ~~assistants~~ and ~~occupational~~CMS ~~therapy~~seeks ~~assistants~~ to beimpose ~~generally~~an ~~supervised~~estimated by0.05% ~~physical~~adjustment ~~therapists~~based ~~and~~on ~~occupational~~changes ~~therapists, respectively,~~ in ~~private~~work ~~practice,~~relative ~~non-institutional~~value ~~settings,~~units ~~allowing~~(RVUs) ~~greater flexibility in billing~~ for ~~those~~certain ~~assistants’~~ services. ~~Additionally~~As a result, the 2025 PFS Final Rule ~~excepts~~implements a ~~therapist-established~~reimbursement ~~initial~~reduction ~~plan~~ of ~~care~~2.83%, ~~(POC)~~with ~~for~~a ~~PT,~~CF OTof $32.35, orwhich ~~SLT~~is ~~services~~a reduction from ~~requiring~~the a2024 ~~physician~~CF orof ~~non-physician~~$33.29. ~~provider’s~~The ~~(NPP’s)~~2025 ~~signature,~~PFS ~~provided~~Final ~~that~~Rule ~~(1)~~adopts ~~the~~a ~~patient’s~~3.6% ~~physician~~increase orto ~~NPP~~the ~~referred~~threshold ~~the~~for ~~patient~~coding tomodifier ~~the~~requirements ~~therapist~~for PT and ~~(2)~~SLP ~~the~~combined, ~~therapist~~totaling ~~has~~$2,410 ~~evidence~~for ~~that~~2025 with the ~~POC~~same ~~was~~threshold ~~transmitted~~for toOT ~~the~~services. ~~patient’s~~The ~~physician~~threshold orfor ~~NPP~~targeted ~~within~~medical 30review ~~days~~for ofPT ~~the~~and ~~patient’s~~OT ~~initial~~(combined) ~~evaluation.~~and ~~This~~SLP ~~flexibility~~is ~~applies~~expected ~~only~~ to ~~the~~remain ~~initial~~at ~~certification~~$3,000 through 2027.

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~~Finally,~~While the ~~2025~~OBBB ~~PFS~~does ~~Final~~not ~~Rule~~affect ~~reduces~~the ~~COVID-19~~2025 ~~PHE-era~~PFS ~~telehealth~~Final ~~flexibilities~~Rule, ~~beginning~~the onOBBB ~~January~~did 1,provide ~~2025,~~a ~~which~~one-year ~~would~~2.5% ~~have~~increase ~~taken~~to ~~effect without~~ the ~~above~~conversion ~~described~~factor ~~acts~~for ofservices ~~Congress.~~provided ~~Under~~between ~~this~~January ~~final rule~~1, ~~absent~~2026 ~~the~~and ~~subsequent~~January ~~Congressional acts~~1, ~~certain~~2027. ~~restrictions~~On onJuly ~~telehealth~~14, ~~that~~2025, ~~existed~~CMS ~~prior~~issued to the 2026 ~~COVID-19~~PFS ~~PHE~~Proposed ~~will~~Rule go(2026 ~~back~~PFS ~~into~~Proposed ~~effect:~~Rule), ~~most~~which ~~geographic~~increases ~~and~~Medicare ~~site-of-service~~reimbursement ~~restrictions~~for toprovider ~~telehealth~~services ~~will~~by ~~return,~~a ~~while~~2.5% ~~physicians~~increase ~~can~~in ~~still~~the ~~provide~~conversion ~~telehealth~~factor ~~from~~as ~~home,~~set ~~and~~forth ~~can~~in ~~provide~~the ~~audio-only~~OBBB. ~~telehealth~~The ~~communication~~2026 inPFS ~~specific~~Proposed ~~circumstances~~Rule ~~where~~contains ~~the~~numerous ~~patient~~significant ischanges ~~unable~~regarding topayment ~~use~~methods ~~video~~and ~~technology.~~models, ~~CMS~~encourages iscare ~~also~~coordination, ~~establishing~~reduces ~~new~~collection ~~coding~~ and ~~payment~~reporting ~~for~~of ~~caregiver~~data ~~training services~~measurements, ~~including~~and ~~training~~continues ~~services~~certain ~~provided~~telehealth ~~through~~flexibilities ~~eligible~~that ~~telehealth~~began ~~means~~during the COVID-19 pandemic.

OnThe ~~October~~2025 ~~29,~~PFS ~~2024,~~Final ~~MPASA~~Rule ~~was~~also ~~introduced~~adopts ina ~~the~~regulatory ~~House~~change ofthat ~~Representatives,~~allows ~~seeking~~physical totherapy ~~increase~~assistants ~~the~~and ~~amount~~occupational ~~paid~~therapy assistants to ~~physicians~~be ~~under~~generally ~~Medicare~~supervised by ~~4.73%.~~physical ~~MPASA~~therapists ~~was~~and ~~referred~~occupational totherapists, ~~the~~respectively, ~~House~~in ~~Ways~~private ~~and~~practice, ~~Means~~non-institutional ~~Committee~~settings, ~~and~~allowing ~~House~~greater ~~Committee~~flexibility onin ~~Energy~~billing ~~and~~for ~~Commerce~~those onassistants’ ~~October~~services. 29Additionally, ~~2024,~~the ~~and~~2025 noPFS ~~further~~Final ~~action~~Rule ~~has~~excepts ~~been~~a ~~taken~~therapist-established oninitial ~~this~~plan ~~bill.~~of Oncare ~~March~~(POC) 9for PT, ~~2024~~OT, ~~President~~or ~~Biden~~SLT ~~signed~~services ~~the~~from ~~Consolidated~~requiring ~~Appropriations~~a ~~Act,~~physician ~~2024~~or non-physician provider’s (NPP’s) signature, ~~which~~provided ~~included~~that a(1) ~~2.93%~~the ~~update~~patient’s physician or NPP referred the patient to the CYtherapist ~~2024~~and ~~PFS~~(2) CFthe ~~for~~therapist ~~dates~~has ofevidence ~~service~~that ~~March~~the 9,POC ~~2024~~was ~~through~~transmitted ~~December~~to ~~31,~~the ~~2024.~~patient’s ~~This~~physician ~~replaced~~or NPP within 30 days of the 1patient’s initial evaluation.~~25%~~ ~~update~~This ~~provided~~flexibility byapplies ~~the~~only ~~Consolidated~~to ~~Appropriations~~the ~~Act,~~initial ~~2023~~certification.

~~The~~Finally, ~~2024~~the 2025 PFS Final Rule ~~was~~reduces ~~finalized~~COVID-19 inPHE-era ~~November~~telehealth ~~2023~~flexibilities beginning on January 1, 2025, which ~~changed~~would ~~Medicare~~have ~~payments~~taken ~~under~~effect without the ~~PFS~~above-described ~~and~~acts ~~other~~of ~~Medicare~~Congress. ~~Part~~Under Bthis ~~components.~~final ~~The~~rule, CYabsent ~~2024~~the ~~PFS~~subsequent ~~Final~~Congressional ~~Rule~~acts, ~~contained~~certain arestrictions ~~conversion~~on ~~factor~~telehealth ofthat ~~$32.74,~~existed ~~which~~prior ~~was~~to athe ~~decrease~~COVID-19 ofPHE ~~$1.15~~will ~~from~~go ~~the~~back CYinto ~~2023~~effect: ~~PFS~~most ~~conversion~~geographic ~~factor~~and site-of-service ~~$33.89.~~restrictions ~~This~~to CYtelehealth ~~2024~~will ~~conversion~~return, ~~factor~~while ~~was~~physicians ~~3.4%~~can ~~lower~~still ~~than~~provide telehealth from home, and can provide audio-only telehealth communication in specific circumstances where the CYpatient ~~2023~~is ~~conversion~~unable ~~factor~~to use video technology. ~~The~~CMS ~~billing~~is ~~period~~also ~~started~~establishing onnew ~~January~~coding 1and payment for caregiver training services, ~~2024~~including ~~and~~training ~~ran~~services provided through ~~December~~eligible ~~31,~~telehealth ~~2024~~means.

The 2024 PFS Final Rule made payments when physicians and NPPs, involve caregivers in implementing an individualized plan of treatment or therapy. These provisions incentivize the training of caregivers and provide additional funds to offset the costs of training these caregivers. For PT and SLP combined, the threshold for coding modifier requirements increases to $2,330 for CY 2024 with the same threshold for OT services. The KX modifier is added to medical claims to indicate the providing clinician attests that the services corresponding to that claim were medically necessary and that the justification for those services is contained within the patient’s medical records.

The 2024 PFS Final Rule allowed for general supervision of therapy assistants by PTs and OTs for remote therapeutic monitoring (RTM) services. This change may affect the rate of reimbursement for PT and OT services in the future. Additionally, the 2024 PFS Final Rule added certain health and well-being coaching services that Medicare reimbursed on a temporary basis for 2024. The final rule also added risk assessments for social determinants of health to the list of telehealth services Medicare would reimburse.

Programs of All-Inclusive Care for the Elderly

The requirements under the Programs of All-Inclusive Care for the Elderly (PACE) provide greater operational flexibility and update information under the Medicare and Medicaid programs, including leniency in compliance with program requirements during and after a 3-year trial period and relieving restrictions placed on the team that assesses and provides for the needs of each PACE participant. Further, non-physician primary care providers can provide certain services in place of primary care physicians. The final rule, which went into effect on April 3, 2023, requires the collection of data by Medicare Advantage organizations and their service providers and the submission of data to CMS for risk adjustment data validation (RADV) audits. The purpose of these RADV audits is to maintain the accuracy of risk-adjusted payments made to Medicare Advantage organizations.

In 2024, CMS issued a new prescription drug event (PDE) reporting requirements for PACE organizations to receive manufacturer discounts for drugs provided through Medicare Part D as provided for in the Inflation Reduction Act of 2022 (IRA). The additional PDE information must be submitted beginning January 1, 2025. In June of 2024, CMS also updated its statement of rights for PACE participants.

Decisions Regarding Skilled Nursing Facility Payment

Reimbursement rates and rules are subject to frequent change that historically, have had a significant effect on our revenue. The federal government and state governments continue to focus on efforts to curb spending on healthcare programs such as Medicare and Medicaid. We are not able to predict the outcome of the legislative process. We also cannot predict the extent to which proposals will be adopted or, if adopted and implemented, what effect, if any, such proposals and existing new legislation will have on us. Efforts to impose reduced allowances, greater discounts and more stringent cost controls by government and other payors are expected to continue and could adversely affect our business, financial condition and results of operations.

These include statutory and regulatory changes, rate adjustments (including retroactive adjustments), administrative or executive orders and government funding restrictions influenced by budgetary or political pressures, may materially adversely affect the rates at which Medicare reimburses us for our services. Implementation of these and other types of measures has in the past, and could in the future, result in substantial reductions in our revenue and operating margins. For a discussion of historic adjustments and recent changes to the Medicare program and other reimbursement rates, see Part II, Item 1A Risk Factors under the headings Risks Related to Our Business and Industry.

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Patient Protection and Affordable Care Act (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.

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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. The Biden-Harris Administration had also signaled an increasing focus on nursing home performance and the reimbursement nursing homes receive from federal healthcare payment programs. The change in the presidency following the 2024 presidential elections may result in a change to this focus, in whole or in part. There has not yet been public disclosure of the priorities of the new Presidential Administration, in addition to those of the anticipated new leaders of HHS and CMS, as they relate to SNFs and long-term care facilities. Many states also have a false claim prohibition that mirrors or closely tracks the federal FCA.

Federal law also provides that the OIG has the authority to exclude individuals and entities from federally funded health care programs on a number of grounds, including, but not limited to, certain types of criminal offenses, licensure revocations or suspensions and exclusion from state or other federal healthcare programs. CMS can recover overpayments from health care providers up to six years following the year in which payment was made.

Over the years, the OIG have released the result of audit findings of Medicare overpayments, potentially affecting SNFs. These investigatory actions by OIG demonstrate its increased scrutiny into post-hospital SNF care provided to beneficiaries and may encourage additional oversight or stricter compliance standards. The DOJ has indicated that its healthcare enforcement trends would emphasize opioid prescribing, Medicare Advantage and managed care plan fraud, and COVID-19 related fraud, including under various relief programs available during and in conjunction with the pandemic. In November of 2023, OIG added to its work plan an audit of nursing homes' nurse staffing hours reported in CMS's payroll-based journal, for which OIG expects to issue a report in FY 2025. In addition, the OIG identified the following areas as its "key goals" for oversight: (1) protecting residents from fraud, abuse, neglect, and promoting quality of care; (2) promoting emergency preparedness and emergency response efforts: (3) strengthening frontline oversight; and (4) supporting federal monitoring of nursing homes to mitigate risks to residents.

In 2024, the OIG added to its work plan a series of studies that include: (a) the use of the National Background Check Program (NBCP) in conducting background checks of prospective long-term care provider employees to prepare a report regarding the cost of background checks, number of applicants who received background checks and disqualification of employees during and after NBCP participation; (b) the use of Medicaid supplemental payments for use in satisfying the state’s obligations to pay nursing facilities any amounts due under the state’s nursing facility upper payment limit; and (3) the assessment of the implementation of the Special Focus Facility Program for nursing facilities based on facilities that participated in the program from 2013 through 2022.

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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 ~~changes~~upcoming modifications to Nursing Home Care Compare platform and the Five Star Quality Rating system, ~~that~~set ~~will~~to take effect on July 30, 2025. Under these changes, CMS ~~will~~discontinued nothe ~~longer~~use ~~include~~of the third most recent standard health survey in calculating the health inspection rating, ~~and~~relying instead ~~use~~on only the two ~~most~~latest ~~recent~~ surveys ~~going forward~~. The most recent survey will be weighted at 75% of the total score, ~~with~~while the second most recent survey result ~~constituting~~will contribute to the remaining 25% of the score. Additionally, CMS will ~~also~~ begin publishing aggregated five-star performance metrics for nursing home chains and will remove COVID-19 vaccination measures from facility profile pages. Additionally, CMS is updating the long-stay antipsychotic measure to incorporate Medicare and Medicaid claims and Medicare Advantage encounter data, with the updated measure taking effect October 29, 2025, likely increasing national antipsychotic rates from approximately 14.6% to 17.0%. We expect that this change will result in varying changes to individual facilities' ratings.

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 ~~January~~July ~~of 2025~~2024, CMS ~~unfroze~~updated ~~four~~the ofNursing ~~its~~Home ~~quality~~Five-Star ~~measures~~Quality ~~that~~Rating itSystem ~~previously~~to ~~froze~~reflect ~~with~~several ~~its~~key ~~April 2024 refresh~~changes. ~~CMS~~The ~~updated~~staffing ~~these~~case-mix ~~measures~~methodology tonow ~~reflect~~uses ~~recent changes in~~ the ~~minimum~~PDPM ~~data set collected from SNFs. First~~model, ~~the~~replacing ~~measure~~measures ofthat ~~percentage~~were ofpreviously ~~SNF~~frozen ~~residents~~in ~~who~~April. ~~are~~CMS atalso orextended ~~above an expected ability to care for themselves and move around at discharge replaced~~ the ~~measure~~definition of ~~percentage~~staffing ~~of residents who made improvements in function during a short stay~~turnover. ~~Second,~~Employees ~~the~~are ~~following~~now ~~measures~~considered ~~have~~“turned ~~been~~over” ~~respecified:~~if ~~(1)~~they ~~percentage~~haven’t ofworked ~~residents whose need~~ for ~~help~~90 ~~with~~consecutive ~~activities~~days, ofup ~~daily~~from ~~living~~60. ~~has increased during a long stay~~Additionally, ~~and~~CMS ~~(2)~~revised ~~percentage~~risk-adjustment ofmodels ~~residents~~for ~~whose~~claims-based ~~ability~~measures to ~~walk~~focus ~~independently~~on ~~worsened~~residents’ ~~during~~functional aabilities ~~long~~and ~~stay. Finally~~goals, ~~the~~rather ~~measure~~than ofjust ~~percentage~~their ofstatus. ~~all~~To ~~residents~~maintain ~~with~~consistency ~~pressure~~in ~~ulcers~~star ~~(regardless of stay duration) will replace the measure of percentage of high-risk residents with pressure ulcers during a long stay. Additionally~~ratings, CMS ~~recalculated~~adjusted ~~the~~thresholds ~~scoring~~so ~~cut~~the ~~points for these four measures to obtain an even~~ distribution of ~~scores.~~4- ~~Additionally,~~and ~~the~~5-star ~~quality measure rating cut points were also adjusted to maintain their same overall distribution of~~ ratings ~~across~~remains ~~measured facilities~~stable.

In ~~July~~April of 2024, CMS ~~updated~~froze ~~the~~four ~~Nursing~~quality ~~Home~~measures ~~Five-Star Quality Rating System’s Technical Users’ Guide to identify~~ and ~~explain~~three ~~a change in~~ staffing ~~case-mix methodology to adopt a model based on PDPM, changing the~~ measures ~~that CMS previously froze in April of 2024. This update~~ to ~~the~~prevent ~~Technical~~changes ~~Users’~~until ~~Guide also extended the gap period (during which no work hours are reported) for defining nurse staffing turnover from 60 days to 90 days. As~~ a ~~result~~subsequent of this update, for the three staffing turnover measures, individuals who no longer work in the nursing home are defined as eligible individuals who have a period of at least 90 consecutive days in which they do not work at all, increased from 60 daysdate. ~~CMS~~It also updated the ~~risk-adjustment~~staffing ~~models~~rating ~~for~~methodology ~~the four claims-based measures~~ to ~~reflect~~assign ~~measures of functional abilities and goals, rather than residents’ functional status. Finally, CMS revised~~ the ~~thresholds~~lowest ~~for~~score ~~the~~to ~~staffing~~facilities ~~measures~~that ~~and~~fail ~~claims-based quality measures~~ to ~~maintain~~submit ~~the~~or ~~same~~submit ~~distribution~~incorrect ~~by points for affected~~ staffing ~~and quality measures, maintaining the same proportions of available five- and four-star ratings for facilities~~data.

InOwnership ~~April~~Transparency ofFinal ~~2024~~Rule — In November 2023, CMS ~~updated~~finalized ~~its~~a ~~Nursing~~rule ~~Home~~requiring ~~Five-Star~~SNFs ~~Quality~~to ~~Rating~~publicly ~~System’s~~disclose ~~Technical~~expanded ~~Users’~~information ~~Guide~~regarding intheir ~~several~~ownership ~~respects.~~and ~~First~~management structure, ~~CMS~~including ~~froze~~the ~~four~~identity of ~~the~~any ~~quality~~person ~~measures~~or ~~from~~legal ~~any~~entity ~~changes~~that: (1) ~~percentage~~exercises offinancial, ~~residents~~operational, ~~who~~or ~~made~~managerial ~~improvements~~control inover ~~function~~any ~~(short~~facility ~~stay);~~or ~~(2)~~part ~~percentage~~ of ~~residents~~a ~~whose~~facility, ~~need~~or ~~for~~provides ~~help~~services ~~with~~to ~~activities~~a offacility ~~daily~~that ~~living~~include ~~has~~its ~~increased~~policies ~~(long~~and ~~stay)~~procedures or cash management services; (32) ~~percentage~~leases ofor ~~residents~~subleases ~~whose~~real ~~ability~~property to ~~move~~the ~~independently~~facility, ~~worsened~~or ~~(long~~owns ~~stay)~~5% or more of the real property’s total value; and (43) ~~percentage~~provides ofany ~~high-risk~~management ~~residents~~or ~~with~~administrative ~~pressure~~services ~~ulcers~~ (~~long~~or ~~stay),~~consults ~~which~~regarding ~~would~~the ~~have~~same), ~~been~~or ~~unfrozen~~provides ~~and~~accounting ~~modified~~or asfinancial ofservices ~~January~~to ~~2025~~SNFs. The ~~short-stay~~rule ~~functional~~also ~~improvement~~expands ~~measure~~ownership isand ~~replaced~~control ininterest ~~October~~disclosures ofto ~~2024~~include ~~with~~information aabout ~~new~~each ~~cross-setting~~member ~~function~~of ~~measure~~the ~~used~~facilities ingoverning ~~the~~body, ~~SNF~~individuals ~~QRP.~~or ~~CMS~~entities ~~also~~serving ~~updated~~as ~~the~~officers, ~~staffing~~directors, ~~level~~members, ~~case-mix~~partners ~~adjustment~~or ~~methodology~~managing employees, and ~~froze~~a ~~three~~comprehensive ~~staffing~~breakdown ~~level~~of ~~measures~~the ~~until~~organizational ~~July~~structure of ~~2024:~~any ~~(1)~~additional ~~adjusted~~disclosable RNparty ~~staffing~~that ~~(HPRD);~~is ~~(2)~~not ~~adjusted~~a ~~total~~natural ~~nurse~~person ~~staffing~~along ~~(HPRD);~~with ~~and~~a ~~(3)~~description ~~adjusted~~of ~~total~~their ~~nurse~~relationships ~~staffing~~with onthe ~~weekends (HPRD)~~facility. ~~These~~Starting ~~frozen~~in ~~measures~~November ~~will~~of ~~not~~2024, ~~affect~~all ~~staff~~SNFs ~~turnover~~must ~~measures.~~comply ~~Additionally,~~with ~~beginning~~these inrequirements. ~~April~~To offacilitate ~~2024~~compliance, CMS ~~revised~~now ~~the~~requires ~~staffing~~SNFs ~~rating~~to ~~methodology~~submit toa ~~give~~new "SNF Attachment" to the ~~lowest~~standard ~~possible~~CMS ~~score~~form ~~for~~885A ~~staffing~~during ~~turnover~~revalidation. ~~measures~~On toJuly ~~providers~~23, ~~who~~2025, ~~fail~~CMS toannounced ~~submit~~that ~~staffing~~all ~~data~~SNFs ormust ~~submit~~revalidate ~~erroneous~~their ~~data~~enrollment using this new attachment by January 1, 2026, regardless of their previous revalidation date.

InCertain ~~2023,~~states ~~CMS~~have ~~revised~~adopted ~~the~~laws ~~nursing-home~~reflecting ~~level~~their ~~exclusion~~concerns ~~criteria~~regarding ~~used~~ownership ontransparency. ~~the~~For ~~administrator~~example, ~~turnover~~Iowa ~~measure,~~adopted ~~adding~~laws requiring disclosure of ownership information ~~regarding~~not ~~the~~previously ~~staff~~required ~~turnover~~for ~~measure~~licensure ~~and~~to anpromote ~~updated~~transparency ~~ratings~~in ~~table~~2023. Additionally, ~~which~~in ~~identifies~~March 2024, the ~~points~~California ~~needed~~Department ~~for~~of ~~each~~Health ~~nursing~~Care ~~facility~~Access toand ~~obtain~~Information ~~certain~~of ~~star~~the ~~ratings.~~California ~~Under~~Health ~~these~~and ~~guidelines,~~Human ~~only~~Services ~~10%~~Agency issued its notice of ~~nursing~~approval ~~facilities~~of ~~can~~regulatory ~~receive~~action aestablishing ~~five~~policies and procedures that implement financial and ownership transparency requirements for California-~~star~~licensed ~~rating~~SNFs that are required by California law passed in ~~the~~2021. ~~state~~Additionally, ~~where~~on itJuly ~~operates~~27, ~~with~~2025, the ~~bottom~~State ~~20%~~of ~~receiving~~Washington aenacted ~~one-star~~H.B. ~~rating~~1686, ~~and~~directing ~~the~~state ~~remaining~~agencies ~~70%~~to ~~receiving~~develop a ~~distribution~~plan and recommendations for creating a registry of ~~two-,~~health ~~three-~~care entities, ~~and~~including ~~four-star ratings~~SNFs.

Ownership Transparency Final Rule — CMS' final rule published in November 2023 requires SNFs to publicly disclose certain additional information regarding their ownership and managerial relationships, including the identity of any person or legal entity that: (1) exercises financial, operational, or managerial control over any facility or part of a facility, or provides services to a facility that include its policies and procedures or cash management services; (2) leases or subleases real property to the facility, or owns 5% or more of the real property’s total value; and (3) provides any management or administrative services (or consults regarding the same), or provides accounting or financial services to SNFs. The rule also expands ownership and control interest disclosures to include information about each member of the facilities governing body, individuals or entities serving as officers, directors, members, partners or managing employees, and a comprehensive breakdown of the organizational structure of any additional disclosable party that is not a natural person along with a description of their relationships with the facility. As of November of 2024, all SNFs are required to comply with this rule’s requirements.

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.

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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 ~~policy-making~~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.

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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.

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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.

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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.

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.

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Real Estate Investment Trust (REIT) Qualification

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 ~~June~~September 30, 2025 increased $~~191~~214.56 million, or 1819.58%, compared to the three months ended ~~June~~September 30, 2024, while our diluted GAAP earnings per share grew by 186.0%, from $1.2234 to $1.4442, compared to the three months ended ~~June~~September 30, 2024. Our Same Facilities occupancy ofincreased 82by 2.1% to 83.0% during the three months ended ~~June~~September 30, 2025, ~~an increase of 2.0%~~ compared to the same period in 2024, ~~demonstrates~~demonstrating our ability to gain additional market share even at our more mature operations. Further, our Transitioning Facilities occupancy increased by 43.6% to 84.04% compared to the same period in 2024, highlighting our ~~organic growth~~ ability ~~that~~to ~~results~~organically ~~from~~grow ~~transforming~~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.

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 six months ended June 30, 2025, we added 20 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.

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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.

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 June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
REVENUE:
Service revenue	99.5	%	99.45	%	99.5	%	99.45	%
Rental revenue	0.5		0.65		0.5		0.65
TOTAL REVENUE	100.0	%	100.0	%	100.0	%	100.0	%
Expenses:
Cost of services	7980.26		79.25		79.16		79.13

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