Note 15 - Contingencies and Commitments	3 Months Ended
Mar. 31, 2018
Notes to Financial Statements
Commitments and Contingencies Disclosure [Text Block]	Note 1 5 – Contingencies and Commitments Accrued Risk Reserves We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims both for our owned or leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $96,246,000 and $93,275,000 at March 31, 2018 and December 31, 2017, respectively. The liability is included in accrued risk reserves in the interim condensed consolidated balance sheets and is subject to adjustment for actual claims incurred. It is possible that these claims plus unasserted claims could exceed our insurance coverages and our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows. As a result of the terms of our insurance policies and our use of wholly–owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability. We consider the professional services of independent actuaries to assist us in estimating our exposures for claims obligations (for both asserted and unasserted claims) related to deductibles and exposures in excess of coverage limits, and we maintain reserves for these obligations. Such estimates are based on many variables including historical and statistical information and other factors. Workers ’ Compensation For workers’ compensation, we utilize a wholly–owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third–party customers. Policies are written for a duration of twelve months and cover only risks related to workers’ compensation losses. All customers are companies which operate in the senior care industry. Business is written on a direct basis. Direct business coverage is written for statutory limits and the insurance company’s losses in excess of $1,000,000 per claim are covered by reinsurance. General and Professional Liability Lawsuits and Insurance The senior care industry has experienced increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by nursing facilities and their employees in providing care to residents. As of March 31, 2018, we and/or our managed centers are currently defendants in 63 such claims. Insurance coverage for both periods includes both primary policies and excess policies. The primary coverage is in the amount of $1.0 million per incident, $3.0 million per location with an annual primary policy aggregate limit that is adjusted on an annual basis. For 2017 and 2018, the excess coverage is $9.0 million per occurrence. Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly–owned captive insurance company. Civil Investigative Demand On December 19, 2013, the Company was served with a civil investigative demand (“CID”) from the U.S. Department of Justice and the Office of the U.S. Attorney for the Eastern District of Tennessee (“DOJ Investigation”) requesting the production of documents and interrogatory responses regarding the billing for and medical necessity of certain rehabilitative therapy services. On October 7, 2014, the Company received a subpoena from the Office of Inspector General of the United Department of Health and Human Services (“OIG Subpoena”) related to the current DOJ Investigation. The OIG Subpoena requests certain financial and organizational documents from the Company and certain of its subsidiaries and SNFs and medical records from certain of the Company’s Tennessee–based SNFs. The DOJ Investigation and the OIG Subpoena resulted from the filing of two qui tam lawsuits under seal in the United States District Court for the Eastern District of Tennessee captioned U.S. ex rel. Forsythe v. National Healthcare Corp. , No. 3:12 -cv- 00102 (E.D. Tenn.), and U.S. ex rel. Byrd v. National Healthcare Corp. , No. 3:12 -cv- 00500 (E.D. Tenn.) (the “Lawsuits”), which asserted claims under the False Claims Act (“FCA”) against the Company based on allegations that the Company provided medically unnecessary skilled services to patients. The Lawsuits also alleged that the plaintiffs in the Lawsuits were terminated in violation of the FCA’s anti-retaliation provisions (the “Retaliation Claims”). Following the DOJ Investigation, on July 31, 2017, the United States filed a Notice of Election to Decline Intervention with respect to the Lawsuits. On March 22, 2018, the district court entered a Memorandum and Order in the Lawsuits, which, among other things, unsealed the Lawsuits, dismissed the qui tam actions without prejudice, and provided the plaintiffs in the Lawsuits leave to file amended complaints with respect to the plaintiffs’ employment-related claims. On April 5, 2018, the plaintiffs filed Amended Complaints in cases captioned Byrd v. National Health Corp. , No. 3:18 -cv- 00123 (E.D. Tenn.), and Forsythe v. National Health Corp. , No. 3:18 -cv- 00122 (E.D. Tenn.), which assert employment-related claims. The Company intends to defend itself vigorously against the allegations asserted in the Amended Complaints when and if the Amended Complaints are served. Caris HealthCare, L.P. Investigation On December 9, 2014, Caris Healthcare, L.P., a business that specializes in hospice care services in Company–owned health care centers and in other settings, received notice from the U.S. Attorney’s Office for the Eastern District of Tennessee and the Attorney Generals’ Offices for the State of Tennessee and State of Virginia that those government entities were conducting an investigation regarding patient eligibility for hospice services provided by Caris precipitated by a qui tam lawsuit. We have a 75.1% non–controlling ownership interest in Caris. A qui tam lawsuit was filed on May 22, 2014, in the U.S. District Court for the Eastern District of Tennessee by a former Caris employee, Barbara Hinkle, and is captioned United States of America, State of Tennessee, and State of Virginia ex rel. Barbara Hinkle v. Caris Healthcare, L.P. , No. 3:14–cv–212 (E.D. Tenn.). On June 16, 2016, the State of Tennessee and the State of Virginia declined to intervene in the qui tam lawsuit. On June 20, 2016, the Court ordered that the complaint be unsealed. On October 11, 2016, the United States filed a Complaint in Intervention against Caris Healthcare, L.P. and Caris Healthcare, LLC, a wholly owned subsidiary of Caris Healthcare, L.P. The United States' complaint alleges that Caris billed the government for ineligible hospice patients between June 2013 and December 2013 and retained overpayments regarding ineligible hospice patients from April 2010 through June 2013. It seeks treble damages and civil penalties under the Federal False Claims Act and asserts claims for payment under mistake of fact, unjust enrichment, and conversion. The relator has filed a notice of voluntary dismissal without prejudice of the non–intervened claims asserted in her qui tam complaint. On May 30, 2017, the district court denied Caris’ motion to dismiss, and the parties have engaged in discovery. This matter is set for trial in March 2019. On March 9, 2018, Caris and the United States jointly moved for a partial 90 -day stay of the case to allow the parties to finalize a settlement in principle of the action. On March 12, 2018, the district court entered an order granting a partial stay of 90 days from the date of the order. On March 22, 2018, Caris and the relator jointly moved for a full stay of the case. On March 23, 2018, the district court entered an order staying all proceedings in the matter for the same time period set forth in the court’s March 12, 2018 order. The parties are ordered to file a joint status report regarding the outcome of their settlement negotiations and any other pertinent matters at the conclusion of that time period. As of and for the three months ended March 31, 2018, Caris has recorded an expense and an estimated liability in the amount of $8,500,000 regarding this legal matter, of which 75.1% is included in the Company's interim condensed consolidated statements of operations. Although the parties have reached an agreement in principle to settle the case, until the action is fully resolved, it is possible that this claim could continue to have material adverse effect on our consolidated financial position, results of operations and cash flows. Financing Commitments In conjunction with our management contract with National, we have entered into a line of credit arrangement whereby we may have amounts due from National from time to time. The maximum loan commitment under the line of credit is $2,000,000. At March 31, 2018, National did not have an outstanding balance on the line of credit. Governmental Regulations Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is in compliance with all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid and other federal healthcare programs.

Note

– Contingencies

and Commitments

Accrued Risk Reserves

We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims both for our owned or leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals

$96,246,000

and

$93,275,000

March 31, 2018

and

December 31, 2017,

respectively. The liability is included in accrued risk reserves in the interim condensed consolidated balance sheets and is subject to adjustment for actual claims incurred. It is possible that these claims plus unasserted claims could exceed our insurance coverages and our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

As a result of the terms of our insurance policies and our use of wholly–owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability. We consider the professional services of independent actuaries to assist us in estimating our exposures for claims obligations (for both asserted and unasserted claims) related to deductibles and exposures in excess of coverage limits, and we maintain reserves for these obligations. Such estimates are based on many variables including historical and statistical information and other factors.

Workers

’

Compensation

For workers’ compensation, we utilize a wholly–owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third–party customers. Policies are written for a duration of

twelve

months and cover only risks related to workers’ compensation losses. All customers are companies which operate in the senior care industry. Business is written on a direct basis. Direct business coverage is written for statutory limits and the insurance company’s losses in excess of

$1,000,000

per claim are covered by reinsurance.

General and Professional Liability Lawsuits and Insurance

The senior care industry has experienced increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by nursing facilities and their employees in providing care to residents. As of

March 31, 2018,

we and/or our managed centers are currently defendants in

such claims.

Insurance coverage for both periods includes both primary policies and excess policies. The primary coverage is in the amount of

$1.0

million per incident,

$3.0

million per location with an annual primary policy aggregate limit that is adjusted on an annual basis. For

2017

and

2018,

the excess coverage is

$9.0

million per occurrence. Additional insurance is purchased through

third

party providers that serve to supplement the coverage provided through our wholly–owned captive insurance company.

Civil Investigative Demand

December 19, 2013,

the Company was served with a civil investigative demand (“CID”) from the U.S. Department of Justice and the Office of the U.S. Attorney for the Eastern District of Tennessee (“DOJ Investigation”) requesting the production of documents and interrogatory responses regarding the billing for and medical necessity of certain rehabilitative therapy services.

October 7, 2014,

the Company received a subpoena from the Office of Inspector General of the United Department of Health and Human Services (“OIG Subpoena”) related to the current DOJ Investigation. The OIG Subpoena requests certain financial and organizational documents from the Company and certain of its subsidiaries and SNFs and medical records from certain of the Company’s Tennessee–based SNFs.

The DOJ Investigation and the OIG Subpoena resulted from the filing of

two

qui tam

lawsuits under seal in the United States District Court for the Eastern District of Tennessee captioned

U.S. ex rel. Forsythe v. National Healthcare Corp.

No.

3:12

-cv-

00102

(E.D. Tenn.), and

U.S. ex rel. Byrd v. National Healthcare Corp.

No.

3:12

-cv-

00500

(E.D. Tenn.) (the “Lawsuits”), which asserted claims under the False Claims Act (“FCA”) against the Company based on allegations that the Company provided medically unnecessary skilled services to patients. The Lawsuits also alleged that the plaintiffs in the Lawsuits were terminated in violation of the FCA’s anti-retaliation provisions (the “Retaliation Claims”). Following the DOJ Investigation, on

July 31, 2017,

the United States filed a Notice of Election to Decline Intervention with respect to the Lawsuits. On

March 22, 2018,

the district court entered a Memorandum and Order in the Lawsuits, which, among other things, unsealed the Lawsuits, dismissed the

qui tam

actions without prejudice, and provided the plaintiffs in the Lawsuits leave to file amended complaints with respect to the plaintiffs’ employment-related claims. On

April 5, 2018,

the plaintiffs filed Amended Complaints in cases captioned

Byrd v. National Health Corp.

No.

3:18

-cv-

00123

(E.D. Tenn.), and

Forsythe v. National Health Corp.

No.

3:18

-cv-

00122

(E.D. Tenn.), which assert employment-related claims. The Company intends to defend itself vigorously against the allegations asserted in the Amended Complaints when and if the Amended Complaints are served.

Caris HealthCare, L.P. Investigation

December 9, 2014,

Caris Healthcare, L.P., a business that specializes in hospice care services in Company–owned health care centers and in other settings, received notice from the U.S. Attorney’s Office for the Eastern District of Tennessee and the Attorney Generals’ Offices for the State of Tennessee and State of Virginia that those government entities were conducting an investigation regarding patient eligibility for hospice services provided by Caris precipitated by a

qui tam

lawsuit. We have a

75.1%

non–controlling ownership interest in Caris.

qui tam

lawsuit was filed on

May 22, 2014,

in the U.S. District Court for the Eastern District of Tennessee by a former Caris employee, Barbara Hinkle, and is captioned

United States of America, State of Tennessee, and State of Virginia ex rel. Barbara Hinkle v. Caris Healthcare, L.P.

No.

3:14–cv–212

(E.D. Tenn.).

June 16, 2016,

the State of Tennessee and the State of Virginia declined to intervene in the

qui tam

lawsuit. On

June 20, 2016,

the Court ordered that the complaint be unsealed. On

October 11, 2016,

the United States filed a Complaint in Intervention against Caris Healthcare, L.P. and Caris Healthcare, LLC, a wholly owned subsidiary of Caris Healthcare, L.P. The United States' complaint alleges that Caris billed the government for ineligible hospice patients between

June 2013

and

December 2013

and retained overpayments regarding ineligible hospice patients from

April 2010

through

June 2013.

It seeks treble damages and civil penalties under the Federal False Claims Act and asserts claims for payment under mistake of fact, unjust enrichment, and conversion. The relator has filed a notice of voluntary dismissal without prejudice of the non–intervened claims asserted in her

qui tam

complaint. On

May 30, 2017,

the district court denied Caris’ motion to dismiss, and the parties have engaged in discovery. This matter is set for trial in

March 2019.

March 9, 2018,

Caris and the United States jointly moved for a partial

-day stay of the case to allow the parties to finalize a settlement in principle of the action. On

March 12, 2018,

the district court entered an order granting a partial stay of

days from the date of the order. On

March 22, 2018,

Caris and the relator jointly moved for a full stay of the case. On

March 23, 2018,

the district court entered an order staying all proceedings in the matter for the same time period set forth in the court’s

March 12, 2018

order. The parties are ordered to file a joint status report regarding the outcome of their settlement negotiations and any other pertinent matters at the conclusion of that time period.

As of and for the

three

months ended

March 31, 2018,

Caris has recorded an expense and an estimated liability in the amount of

$8,500,000

regarding this legal matter, of which

75.1%

is included in the Company's interim condensed consolidated statements of operations. Although the parties have reached an agreement in principle to settle the case, until the action is fully resolved, it is possible that this claim could continue to have material adverse effect on our consolidated financial position, results of operations and cash flows.

Financing Commitments

In conjunction with our management contract with National, we have entered into a line of credit arrangement whereby we

may

have amounts due from National from time to time. The maximum loan commitment under the line of credit is

$2,000,000.

March 31, 2018,

National did

not

have an outstanding balance on the line of credit.

Governmental Regulations

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is in compliance with all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid and other federal healthcare programs.