10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018

OR

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ____________

Commission file number    001–13489

(Exact name of registrant as specified in its Charter)

Delaware	52–2057472
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization	Identification No.)

100 E. Vine Street

Murfreesboro, TN

37130

(Address of principal executive offices)

(Zip Code)

(615) 890–2020

Registrant's telephone number, including area code

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 [x] No [  ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S–T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit and post such files). Yes  [x]      No  [  ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 [X]	Accelerated filer  [  ]
Non–accelerated filer (Do not check if a smaller reporting company) [  ]	Smaller reporting company [  ]
	Emerging growth company [  ]

If an emerging growth company, indicate by check mark 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.  [  ]

Indicate by check mark whether the registrant is a shell company (as is defined in Rule 12b–2 of the Exchange Act). Yes [  ]   No [x]

15,233,254 shares of common stock of the registrant were outstanding as of November 7, 2018.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Operations

 (in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
				(as adjusted)						(as adjusted)
Revenues:
Net patient revenues	$	234,827		$	229,259		$	697,173		$	683,598
Other revenues		11,499			11,937			34,256			34,831
Net operating revenues		246,326			241,196			731,429			718,429
Cost and expenses:
Salaries, wages and benefits		149,188			145,900			434,749			426,639
Other operating		64,507			63,250			192,268			188,522
Facility rent		10,190			10,106			30,691			30,273
Depreciation and amortization		10,437			10,833			31,176			31,609
Interest		1,170			1,322			3,663			3,599
Total costs and expenses		235,492			231,411			692,547			680,642
Income from operations		10,834			9,785			38,882			37,787
Other income:
Non–operating income		8,467			6,090			11,056			16,047
Unrealized gains on marketable equity securities		3,486			–			417			–
Income before income taxes		22,787			15,875			50,355			53,834
Income tax provision		(1,700	)		(4,691	)		(9,792	)		(19,448	)
Net income		21,087			11,184			40,563			34,386
Net loss attributable to noncontrolling interest		55			168			249			349
Net income attributable to National HealthCare Corporation	$	21,142		$	11,352		$	40,812		$	34,735
Earnings per share attributable to National HealthCare Corporation stockholders:
Basic	$	1.39		$	0.75		$	2.68		$	2.29
Diluted	$	1.39		$	0.75		$	2.68		$	2.28
Weighted average common shares outstanding:
Basic		15,225,654			15,195,394			15,221,217			15,186,315
Diluted		15,242,086			15,220,567			15,230,692			15,217,797
Dividends declared per common share	$	0.50		$	0.48		$	1.48		$	1.41

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

3

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Comprehensive Income

(unaudited – in thousands) 

	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
Net income	$	21,087		$	11,184		$	40,563		$	34,386
Other comprehensive gain (loss):
Unrealized gains (losses) on investments in restricted marketable debt securities		(180	)		397			(3,772	)		2,629
Unrealized gains (losses) on investments in marketable equity securities		–			(4,373	)		–			5,751
Reclassification adjustment for realized (gains) losses on sale of securities		7			(17	)		(18	)		(255	)
Income tax benefit (expense) related to items of other comprehensive income		36			1,572			795			(3,074	)
Other comprehensive gain (loss), net of tax		(137	)		(2,421	)		(2,995	)		5,051
Net loss attributable to noncontrolling interest		55			168			249			349
Comprehensive income attributable to National HealthCare Corporation	$	21,005		$	8,931		$	37,817		$	39,786

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

4

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets

(in thousands) 

	September 30, 2018			December 31, 2017
	unaudited
Assets
Current Assets:
Cash and cash equivalents	$	55,599		$	59,118
Restricted cash and cash equivalents, current portion		10,209			6,397
Marketable equity securities		139,502			139,085
Restricted marketable debt securities, current portion		17,606			21,012
Accounts receivable, net		87,263			86,767
Inventories		7,590			7,153
Prepaid expenses and other assets		3,163			2,864
Notes receivable, current portion		1,338			1,450
Federal income tax receivable		2,203			5,465
Total current assets		324,473			329,311
Property and Equipment:
Property and equipment, at cost		977,373			958,748
Accumulated depreciation and amortization		(436,437	)		(409,429	)
Net property and equipment		540,936			549,319
Other Assets:
Restricted cash and cash equivalents, less current portion		1,925			1,906
Restricted marketable debt securities, less current portion		150,428			145,383
Deposits and other assets		5,807			4,867
Goodwill		20,995			17,600
Notes receivable, less current portion		10,031			11,801
Investments in limited liability companies		30,073			36,339
Total other assets		219,259			217,896
Total assets	$	1,084,668		$	1,096,526

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

5

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets (continued)

(in thousands, except share and per share amounts) 

	September 30, 2018			December 31, 2017
	unaudited
Liabilities and Stockholders’ Equity
Current Liabilities:
Trade accounts payable	$	19,611		$	15,978
Capital lease obligations, current portion		3,865			3,696
Accrued payroll		58,487			67,102
Amounts due to third party payors		17,596			17,389
Accrued risk reserves, current portion		27,815			27,409
Other current liabilities		16,561			16,194
Dividends payable		7,613			7,297
Total current liabilities		151,548			155,065
Long–term debt		75,000			100,000
Capital lease obligations, less current portion		20,132			23,052
Accrued risk reserves, less current portion		67,972			65,866
Refundable entrance fees		8,668			8,827
Obligation to provide future services		2,887			2,887
Deferred income taxes		18,648			18,376
Other noncurrent liabilities		14,703			15,795
Deferred revenue		3,892			3,226
Total liabilities		363,450			393,094
Equity:
Common stock, $.01 par value; 45,000,000 shares authorized; 15,225,654 and 15,212,133 shares, respectively, issued and outstanding		152			152
Capital in excess of par value		217,657			215,659
Retained earnings		505,906			419,423
Accumulated other comprehensive income (loss)		(3,692	)		67,504
Total National HealthCare Corporation stockholders’ equity		720,023			702,738
Noncontrolling interest		1,195			694
Total equity		721,218			703,432
Total liabilities and equity	$	1,084,668		$	1,096,526

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

6

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

	Nine Months Ended September 30
	2018			2017
				(as adjusted)
Cash Flows From Operating Activities:
Net income	$	40,563		$	34,386
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		31,176			31,609
Equity in (earnings) losses of unconsolidated investments		1,860			(5,908	)
Distributions from unconsolidated investments		3,830			7,748
Unrealized gains on marketable equity securities		(417	)		–
Gains on sale of restricted marketable debt securities		(18	)		(255	)
Gain on acquisition of equity method investment		(2,050	)		–
Deferred income taxes		1,067			881
Stock–based compensation		1,538			1,263
Changes in operating assets and liabilities:
Accounts receivable		613			2,273
Income tax receivable		3,262			(1,248	)
Inventories		(437	)		395
Prepaid expenses and other assets		(1,336	)		(942	)
Trade accounts payable		3,319			(3,857	)
Accrued payroll		(8,615	)		(10,326	)
Amounts due to third party payors		207			3,630
Accrued risk reserves		2,668			4,375
Other current liabilities		262			7,086
Other noncurrent liabilities		(1,092	)		(760	)
Deferred revenue		666			645
Net cash provided by operating activities		77,066			70,995
Cash Flows From Investing Activities:
Additions to property and equipment		(22,708	)		(24,328	)
Acquisition of equity method investment, net of cash acquired		(527	)		–
Distributions from/(investments in) unconsolidated companies		376			(176	)
Collections of notes receivable		1,180			3,970
Purchase of restricted marketable securities		(9,950	)		(24,874	)
Sale of restricted marketable securities		4,539			46,598
Net cash (used in) provided by investing activities		(27,090	)		1,190
Cash Flows From Financing Activities:
Principal payments on debt		(25,000	)		–
Principal payments under capital lease obligations		(2,751	)		(2,591	)
Dividends paid to common stockholders		(22,214	)		(20,943	)
Issuance of common shares		1,327			1,627
Repurchase of common shares		(867	)		–
Equity attributable to noncontrolling interest		–			970
Entrance fee refunds		(159	)		(1,097	)
Net cash used in financing activities		(49,664	)		(22,034	)
Net Increase in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents		312			50,151
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period		67,421			31,589
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period	$	67,733		$	81,740
Balance Sheet Classifications:
Cash and cash equivalents	$	55,599		$	69,790
Restricted cash and cash equivalents		12,134			11,950
Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	$	67,733		$	81,740

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

7

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share amounts)

(unaudited)

	Common Stock					Capital in Excess of Par			Retained			Accumulated Other Comprehensive			Non- controlling			Total Stockholders’
	Shares			Amount		Value			Earnings			Income (Loss)			Interest			Equity
Balance at January 1, 2017		15,162,938		$	152	$	211,457		$	391,934		$	66,068		$	–		$	669,611
Net income attributable to National HealthCare Corporation		–			–		–			34,735			–			–			34,735
Net loss attributable to noncontrolling interest		–			–		–			–			–			(349	)		(349	)
Equity contributed by noncontrolling interest		–			–		–			–			–			970			970
Other comprehensive income		–			–		–			–			5,051			–			5,051
Stock–based compensation		–			–		1,263			–			–			–			1,263
Shares sold – options exercised		33,917			–		1,627			–			–			–			1,627
Dividends declared to common stockholders ($1.41 per share)		–			–		–			(21,419	)		–			–			(21,419	)
Balance at September 30, 2017		15,196,855		$	152	$	214,347		$	405,250		$	71,119		$	621		$	691,489
Balance at January 1, 2018		15,212,133		$	152	$	215,659		$	419,423		$	67,504		$	694		$	703,432
Reclassification due to new accounting standards		–			–		–			68,201			(68,201	)		–			–
Net income attributable to National HealthCare Corporation		–			–		–			40,812			–			–			40,812
Net loss attributable to noncontrolling interest		–			–		–			–			–			(249	)		(249	)
Equity contributed by noncontrolling interest		–			–		–			–			–			750			750
Other comprehensive loss		–			–		–			–			(2,995	)		–			(2,995	)
Stock–based compensation		–			–		1,538			–			–			–			1,538
Shares sold – options exercised		28,027			–		1,327			–			–			–			1,327
Repurchase of common shares		(14,506	)		–		(867	)		–			–			–			(867	)
Dividends declared to common stockholders ($1.48 per share)		–			–		–			(22,530	)		–			–			(22,530	)
Balance at September 30, 2018		15,225,654		$	152	$	217,657		$	505,906		$	(3,692	)	$	1,195		$	721,218

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

8

NATIONAL HEALTHCARE CORPORATION

Notes to Interim Condensed Consolidated Financial Statements

September 30, 2018

(unaudited)

Note 1 – Description of Business

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of September 30, 2018, we operate or manage, through certain affiliates, 76 skilled nursing facilities with a total of 9,604 licensed beds, 24 assisted living facilities, five independent living facilities, one geriatric psychiatric hospital, and 35 homecare programs. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. We also have a noncontrolling ownership interest in a hospice care business that services NHC owned skilled nursing facilities and others. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing facilities. We operate in 10 states and are located primarily in the southeastern United States. 

Note 2 – Summary of Significant Accounting Policies

The listing below is not intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited December 31, 2017 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by generally accepted accounting principles. Our audited December 31, 2017 consolidated financial statements are available at our web site: www.nhccare.com.

Basis of Presentation

The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations.

We assume that users of these interim condensed consolidated financial statements have read or have access to the audited December 31, 2017 consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons.

Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period.

Recently Adopted Accounting Guidance

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014–09 “Revenue from Contracts with Customers,” also known as the “New Revenue Standard.” This update is the result of a collaborative effort by the FASB and the International Accounting Standards Board to simplify revenue recognition guidance, remove inconsistencies in the application of revenue recognition, and to improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive for those goods or services. The New Revenue Standard is applied through the following five-step process:

1. Identify the contract(s) with a customer.

2. Identify the performance obligation in the contract.

3. Determine the transaction price.

4. Allocate the transaction price to the performance obligations in the contract.

5. Recognize revenue when (or as) the entity satisfies a performance obligation.

For a public entity, this update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period by applying either the full retrospective method or the cumulative catch-up transition method.

9

On January 1, 2018, the Company adopted the provisions of ASU No. 2014-09 using the full retrospective method, which requires us to restate each prior reporting period presented. The most significant impact to NHC relates to the recording of revenue for patients that have individual copayment responsibilities and are eligible for both Medicare and Medicaid benefits (also known as dual eligible patients). As such with these patients, net patient revenues will only include the amounts expected to be collected from the patients in accordance with ASU No. 2014-09. Under the prior accounting guidance, we recorded the price stated in the contract as net patient revenue, and the amounts not collected from our patients were recorded as bad debts in other operating expenses. The adoption of ASU No. 2014-09 has no impact on the Company’s accounts receivable as it was historically recorded net of allowance for doubtful accounts and contractual adjustments. The following tables present the effect on the interim condensed consolidated statements of operations for the three months and nine months ended September 30, 2017 for the accounting change that was retrospectively adopted on January 1, 2018:

Consolidated Statements of Operations

(in thousands)

	Three Months Ended September 30, 2017
	As Previously Reported		Effect of Accounting Change			As Adjusted
Net patient revenues	$	230,048	$	(789	)	$	229,259
Net operating revenues		241,985		(789	)		241,196
Other operating expenses		64,039		(789	)		63,250
Total costs and expenses		232,200		(789	)		231,411
Net income	$	11,184	$	–		$	11,184

	Nine Months Ended September 30, 2017
	As Previously Reported		Effect of Accounting Change			As Adjusted
Net patient revenues	$	685,854	$	(2,256	)	$	683,598
Net operating revenues		720,685		(2,256	)		718,429
Other operating expenses		190,778		(2,256	)		188,522
Total costs and expenses		682,898		(2,256	)		680,642
Net income	$	34,386	$	–		$	34,386

In January 2016, the FASB issued ASU No. 2016–01, “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825).” ASU No. 2016–01 revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016–01 requires the change in fair value of many equity investments to be recognized in net income.  On January 1, 2018, the Company adopted the provisions of ASU No. 2016-01 using the modified retrospective method as required by the standard. The adoption of ASU No. 2016-01 resulted in a $68,073,000 reclassification of net unrealized gains from accumulated other comprehensive income (“AOCI”) to the opening balance of retained earnings. For the three months and nine months ended September 30, 2018, the Company recognized a gain of $3,486,000 and $417,000, respectively, in our interim condensed consolidated statement of operations related to the change in fair value of our marketable equity securities.  The adoption of ASU No. 2016-01 increases the volatility of other income due to the market fluctuation of our marketable equity securities.

In August 2016, the FASB issued ASU No. 2016-15, “Clarification on Classification of Certain Cash Receipts and Cash Payments on the Statements of Cash Flows.” ASU No. 2016-15 was issued to create consistency in the classification of eight specific cash flow items and provides an accounting policy election for classifying distributions received from equity method investments. Such equity method investment distributions are now classified using a 1) cumulative earnings approach, or 2) nature of distribution approach. On January 1, 2018, the Company adopted the provisions of ASU No. 2016-15 and this standard did not have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU No. 2017-09 amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification ("ASC") 718. On January 1, 2018, the Company adopted the provisions of ASU No. 2017-09 and this standard did not have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU No. 2018-02 permits a company to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act of 2017 to retained earnings. The FASB refers to these amounts as “stranded tax effects.” On January 1, 2018, the Company early adopted the provisions of ASU No. 2018-02. The adoption of this standard resulted in an adjustment of accumulated other comprehensive income, with a corresponding adjustment to the opening balance of retained earnings in the amount of $128,000, related to the stranded tax effects of the unrealized losses in our restricted marketable debt securities.

10

Recent Accounting Guidance Not Yet Adopted      

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. We anticipate this standard will have a material impact on our consolidated financial statements and will result in an increase to total assets and total liabilities. Additionally, we are currently evaluating the impact this standard will have on our policies and procedures and internal control framework.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments."  ASU No. 2016-13 replaces the current incurred loss impairment methodology for credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted for fiscal years beginning after December 15, 2018.  We are currently evaluation the impact this standard will have on our policies and procedures and internal control framework.

Segment Reporting

In accordance with the provisions of ASC 280, “Segment Reporting”, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities and assisted and independent living facilities, and (2) homecare services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 6 for further disclosure of the Company’s operating segments.

Other Operating Expenses

Other operating expenses include the costs of care and services that we provide to the residents of our facilities and the costs of maintaining our facilities. Our primary patient care costs include drugs, medical supplies, purchased professional services, food, and professional liability insurance and licensing fees. The primary facility costs include utilities and property insurance.

General and Administrative Costs

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $7,805,000 and $21,056,000 for the three months and nine months ended September 30, 2018, respectively. General and administrative costs were $7,180,000 and $22,442,000 for the three months and nine months ended September 30, 2017, respectively.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided by the straight-line method over the expected useful lives of the assets estimated as follows: buildings and improvements, 20-40 years and equipment and furniture, 3-15 years. Leasehold improvements are amortized over periods that do not exceed the non-cancelable respective lease terms using the straight-line method.

Capital leases are recorded at the lower of fair market value or the present value of future minimum lease payments. Capital leases are amortized in accordance with the provision codified within Accounting Standards Codification (“ASC”) Subtopic 840-30, Leases – Capital Leases. Amortization of capital lease assets is included in depreciation and amortization expense.

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. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.

Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on alleged negligence by skilled nursing facilities and their employees in providing care to residents. As of September 30, 2018, we and/or our managed centers are defendants in 65 such claims. It remains possible that those pending matters plus potential unasserted claims could exceed our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.

We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverages include both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.

Continuing Care Contracts and Refundable Entrance Fee

We have one Continuing Care Retirement Community (”CCRC”) within our operations. Residents at this retirement center may enter into continuing care contracts with us. The contracts provide that 10% of the resident entry fee becomes non-refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lessor of the price at which the apartment is re-assigned or 90% of the original entry fee, plus 40% of any appreciation if the apartment exceeds the original resident’s entry fee.

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Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarially determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are not included as part of the transaction price and are classified as non-current liabilities in the Company's consolidated balance sheets. The balances of refundable entrance fees as of September 30, 2018 and December 31, 2017 were $8,668,000 and $8,827,000, respectively.

Obligation to Provide Future Services

We annually estimate the present value of the cost of future services and the use of facilities to be provided to the current CCRC residents and compare that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income. As of September 30, 2018, and December 31, 2017, we have recorded a future service obligation in the amount of $2,887,000.

Other Noncurrent Liabilities

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions.

Deferred Revenue

Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”), the non-refundable portion (10%) of CCRC entrance fees being amortized over the remaining life expectancies of the residents, and premiums received within our workers’ compensation and professional liability companies that are not yet earned.

Noncontrolling Interest

The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

Variable Interest Entities

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) are the sole entity that has the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and may or may not be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in limited liability companies” in the consolidated balance sheets.

Prior Period Classifications

Certain amounts in prior periods have been reclassified to conform with current period presentation.

Note 3 – Net Patient Revenues

Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, and home health care services. Net patient revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient services. These amounts are due from patients, governmental programs, and other third-party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations.

The Company disaggregates revenue from contracts with customers by service type and by payor.

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Revenue by Service Type

The Company’s net patient services can generally be classified into the following two categories: (1) inpatient services, which includes the operation of skilled nursing facilities and assisted and independent living facilities, and (2) homecare services.

	Three Months Ended September 30				Nine Months Ended September 30
(in thousands)	2018		2017		2018		2017
Net patient revenues:
Inpatient services	$	220,099	$	213,814	$	652,066	$	636,311
Homecare		14,728		15,445		45,107		47,287
Total net patient revenue	$	234,827	$	229,259	$	697,173	$	683,598

The Company recognizes revenue as its performance obligations are completed. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. For inpatient services, revenue is recognized on a daily basis as each day represents a separate contract and performance obligation. For homecare, revenue is recognized when services are provided based on the number of days of service rendered in the episode or on a per-visit basis. Typically, patients and third-party payors are billed monthly after services are performed or the patient is discharged and payments are due based on contract terms.

As our performance obligations relate to contracts with a duration of one year or less, the Company has elected to apply the optional exemption provided in FASB ASC 606-10-50-14(a) and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients are typically under no obligation to remain admitted in our facilities or under our care.

As the period between the time of service and time of payment is typically one year or less, the Company elected as a practical expedient under ASC 606-10-32-18 to not adjust for the effects of a significant financing component.

Revenue by Payor

Certain groups of patients receive funds to pay the cost of their care from a common source. The following table sets forth sources of net patient revenues for the periods indicated:

	Three Months Ended September 30						Nine Months Ended September 30
Source	2018			2017			2018			2017
Medicare		34	%		34	%		35	%		35	%
Managed Care		12	%		13	%		12	%		13	%
Medicaid		27	%		27	%		26	%		26	%
Private Pay and Other		27	%		26	%		27	%		26	%
Total		100	%		100	%		100	%		100	%

The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third party payors.  Contractual adjustments are based on contractual agreements and historical experience.  The Company considers the patient's ability and intent to pay the amount of consideration upon admission.  Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. The provision for doubtful accounts was $1,098,000 and $3,121,000 for the three months and nine months ended September 30, 2018, respectively. The provision for doubtful accounts was $982,000 and $3,215,000 for the three months and nine months ended September 30, 2017, respectively.

Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days. For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services.

For homecare services, Medicare pays based on the acuity level of the patient and based on episodes of care. An episode of care is defined as a length of care up to 60 days with multiple continuous episodes allowed. The services covered by the episode payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit. We are allowed to make a request for anticipated payment at the start of care equal to 60% of the expected payment for the initial episode. The remaining balance due is paid following the submission of the final claim at the end of the episode. Deferred revenue is recorded for payments received for which the related services have not yet been provided

Medicaid is operated by individual states with the financial participation of the federal government. The states in which we operate currently use prospective cost–based reimbursement systems. Under cost–based reimbursement systems, the skilled nursing facility is reimbursed for the reasonable direct and indirect allowable costs it incurred in a base year in providing routine resident care services as defined by the program.

Private pay, managed care, and other payment sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration. Private paying patients, private insurance carriers and the Veterans Administration generally pay based on the healthcare facilities charges or specifically negotiated contracts. For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills for room and board charges, with the remittance being due on receipt of the statement and generally by the 10th day of the month the services are performed.

Certain managed care payors for homecare services pay on a per-visit basis. This non-episodic based revenue is recorded on an accrual basis based upon the date of services at amounts equal to its established or estimated per-visit rates.     

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Third Party Payors

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties, and exclusion from the Medicare and Medicaid programs. We believe that we are in compliance with all applicable laws and regulations.

Medicare and Medicaid program revenues, as well as certain Managed Care program revenues, are subject to audit and retroactive adjustment by government representatives or their agents. The Medicare PPS methodology requires that patients be assigned to Resource Utilization Groups ("RUGs") based on the acuity level of the patient to determine the amount paid to us for patient services. The assignment of patients to the various RUG categories is subject to post–payment review by Medicare intermediaries or their agents. Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. 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, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations. We believe currently that any differences between the net revenues recorded and final determination will not materially affect the consolidated financial statements. We have made provisions of approximately $17,596,000 and $17,389,000 as of September 30, 2018 and December 31, 2017, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports. 

Note 4 – Other Revenues

Revenues from rental income include health care real estate properties owned by us and leased to third party operators. Revenues from management and accounting services fees are generated by providing management and accounting services to third-party post-acute healthcare facilities. Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly–owned insurance subsidiaries have written for third-party post-acute health care facilities to which we provide management or accounting services. "Other" revenues include miscellaneous health care related earnings.

Other revenues include the following:

	Three Months Ended September 30				Nine Months Ended September 30
(in thousands)	2018		2017		2018		2017
Rental income	$	5,548	$	5,500	$	16,633	$	16,501
Management and accounting services fees		3,818		4,130		11,265		11,741
Insurance services		1,716		2,077		5,362		5,721
Other		417		230		996		868
Total other revenues	$	11,499	$	11,937	$	34,256	$	34,831

Management Fees from National

We manage five skilled nursing facilities owned by National. For the three months and nine months ended September 30, 2018, we recognized management fees and interest on management fees of $1,087,000 and $3,140,000 from these centers, respectively. For the three months and nine months ended September 30, 2017, we recognized management fees and interest on management fees of $977,000 and $2,902,000 for these centers.

Insurance Services

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months and nine months ended September 30, 2018 were $1,043,000 and $3,342,000, respectively. For the three months and nine months ended September 30, 2017, the workers’ compensation premium revenues reflected in the interim condensed consolidated statements of operations were $1,399,000 and $4,087,000. Associated losses and expenses are reflected in the interim condensed consolidated statements of operations as "Salaries, wages and benefits."

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months and nine months ended September 30, 2018 were $673,000 and $2,020,000, respectively. For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months and nine months ended September 30, 2017 were $678,000 and $1,634,000, respectively. Associated losses and expenses including those for self–insurance are included in the interim condensed consolidated statements of operations as "Other operating costs and expenses".

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Note 5 – Non–Operating Income

Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on marketable securities, interest income, and gain on acquisition of additional interest of a geriatric psychiatry partnership.

Our most significant equity method investment is a 75.1% non–controlling ownership interest in Caris HealthCare L.P. (“Caris”), a business that specializes in hospice care services. For the nine months ended September 30, 2018, Caris recorded expenses of $8,364,000 for the settlement of their Qui Tam legal matter, all of which were incurred during the first two quarters of the year. Please see Note 15 – Contingencies and Commitments for further detail describing the Caris’ legal investigation and settlement.

	Three Months Ended September 30				Nine Months Ended September 30
(in thousands)	2018		2017		2018			2017
Equity in earnings/(losses) of unconsolidated investments	$	2,724	$	2,528	$	(1,860	)	$	5,908
Dividends and net realized gains on sales of securities		1,777		1,696		5,374			5,319
Interest income		1,916		1,866		5,492			4,820
Gain on acquisition of equity method investment		2,050		–		2,050			–
Total non-operating income	$	8,467	$	6,090	$	11,056		$	16,047

Gain on acquisition of equity method investment

On July 20, 2018, the Company expanded its operations through an acquisition of additional ownership resulting in a controlling financial interest of a 14-bed geriatric psychiatric hospital in Osage Beach, Missouri.  We previously held a noncontrolling interest and accounted for the hospital as an equity method investment.  The operating results of the business have been included in the accompanying interim condensed consolidated financial statements since the controlling interest acquisition date.

Upon acquiring a controlling financial interest in the investee, the Company fair valued its previously held equity interest as of the acquisition date.  This remeasurement of our equity interest at fair value resulted in a gain of $2,050,000 during the third quarter of 2018.  The gain was recorded in "Non-operating income" in the interim condensed consolidated statement of operations.  Additionally, the excess of the fair value over the amounts assigned to the assets and liabilities of the investee resulted in goodwill in the amount of $3,395,000. 

Note 6 – Business Segments

The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our geriatric psychiatric hospital; (2) homecare services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources.

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note 2 - Summary of Significant Accounting Policies.

The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.

The following table sets forth the Company’s unaudited interim condensed consolidated statements of operations by business segment (in thousands):

	Three Months Ended September 30, 2018
	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	220,099	$	14,728	$	–		$	234,827
Other revenues		136		–		11,363			11,499
Net operating revenues		220,235		14,728		11,363			246,326
Costs and expenses:
Salaries, wages and benefits		131,418		8,367		9,403			149,188
Other operating		57,371		4,797		2,339			64,507
Rent		8,255		488		1,447			10,190
Depreciation and amortization		9,570		55		812			10,437
Interest		369		–		801			1,170
Total costs and expenses		206,983		13,707		14,802			235,492
Income (loss) from operations		13,252		1,021		(3,439	)		10,834
Non-operating income		–		–		8,467			8,467
Unrealized gains on marketable equity securities		–		–		3,486			3,486
Income before income taxes	$	13,252	$	1,021	$	8,514		$	22,787

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	Three Months Ended September 30, 2017
(As adjusted)	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	213,814	$	15,445	$	–		$	229,259
Other revenues		181		–		11,756			11,937
Net operating revenues		213,995		15,445		11,756			241,196
Costs and expenses:
Salaries, wages and benefits		128,403		8,318		9,179			145,900
Other operating		56,062		5,291		1,897			63,250
Rent		8,128		502		1,476			10,106
Depreciation and amortization		9,756		41		1,036			10,833
Interest		423		–		899			1,322
Total costs and expenses		202,772		14,152		14,487			231,411
Income (loss) from operations		11,223		1,293		(2,731	)		9,785
Non-operating income		–		–		6,090			6,090
Income before income taxes	$	11,223	$	1,293	$	3,359		$	15,875

	Nine Months Ended September 30, 2018
	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	652,066	$	45,107	$	–		$	697,173
Other revenues		588		–		33,668			34,256
Net operating revenues		652,654		45,107		33,668			731,429
Costs and expenses:
Salaries, wages and benefits		382,913		25,009		26,827			434,749
Other operating		171,275		14,816		6,177			192,268
Rent		24,780		1,460		4,451			30,691
Depreciation and amortization		28,602		137		2,437			31,176
Interest		1,149		-		2,514			3,663
Total costs and expenses		608,719		41,422		42,406			692,547
Income (loss) from operations		43,935		3,685		(8,738	)		38,882
Non-operating income		–		–		11,056			11,056
Unrealized gains on marketable equity securities		–		–		417			417
Income before income taxes	$	43,935	$	3,685	$	2,735		$	50,355

	Nine Months Ended September 30, 2017
(As adjusted)	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	636,311	$	47,287	$	–		$	683,598
Other revenues		631		–		34,200			34,831
Net operating revenues		636,942		47,287		34,200			718,429
Costs and expenses:
Salaries, wages and benefits		373,641		24,760		28,238			426,639
Other operating		167,454		15,484		5,584			188,522
Rent		24,552		1,490		4,231			30,273
Depreciation and amortization		28,362		120		3,127			31,609
Interest		1,309		–		2,290			3,599
Total costs and expenses		595,318		41,854		43,470			680,642
Income (loss) from operations		41,624		5,433		(9,270	)		37,787
Non-operating income		–		–		16,047			16,047
Income before income taxes	$	41,624	$	5,433	$	6,777		$	53,834

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Note 7 – Long-Term Leases

Capital Leases

Fixed assets recorded under the capital leases, which are included in property and equipment in the interim condensed consolidated balance sheets, are as follows:

	September 30, 2018			December 31, 2017
	(in thousands)
Buildings and personal property	$	39,032		$	39,032
Accumulated amortization		(17,989	)		(15,045	)
	$	21,043		$	23,987

Operating Leases

The Company leases from National Health Investors, Inc. (“NHI”) the real property of 35 skilled nursing facilities, seven assisted living facilities and three independent living facilities under two separate lease agreements. Base rent expense under both lease agreements totals $34,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over the base year. Total facility rent expense to NHI was $9,478,000 and $9,314,000 for the three months ended September 30, 2018 and 2017, respectively. Total facility rent expense to NHI was $28,434,000 and $27,942,000 for the nine months ended September 30, 2018 and 2017, respectively.

Minimum Lease Payments

The approximate future minimum lease payments required under all leases that have remaining non-cancelable lease terms at September 30, 2018 are as follows:

	Operating Leases		Capital Leases
	(in thousands)
2019	$	34,200	$	5,200
2020		34,200		5,200
2021		34,200		5,200
2022		34,200		5,200
2023		34,200		5,200
Thereafter		116,900		2,167
Total minimum lease payments	$	287,900	$	28,167
Less: Amounts representing interest				(4,170	)
Present value of minimum lease payments				23,997
Less: Current portion				(3,865	)
Long-term capital lease obligations			$	20,132

Note 8 – Earnings per Share

Basic net income per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income per share reflects the potential dilution that would have occurred if securities to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.

The following table summarizes the earnings and the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands, except for share and per share amounts):

	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Basic:
Weighted average common shares outstanding		15,225,654		15,195,394		15,221,217		15,186,315
Net income attributable to National HealthCare Corporation	$	21,142	$	11,352	$	40,812	$	34,735
Earnings per common share, basic	$	1.39	$	0.75	$	2.68	$	2.29
Diluted:
Weighted average common shares outstanding		15,225,654		15,195,394		15,221,217		15,186,315
Dilutive effect of stock options		16,432		25,173		9,475		31,482
Weighted average common shares outstanding		15,242,086		15,220,567		15,230,692		15,217,797
Net income attributable to National HealthCare Corporation	$	21,142	$	11,352	$	40,812	$	34,735
Earnings per common share, diluted	$	1.39	$	0.75	$	2.68	$	2.28

In the above table, options to purchase 1,048,275 and 1,122,585 shares of our common stock have been excluded for the quarter ended and nine-months ended September 30, 2018 and 2017, respectively, due to their anti–dilutive impact. 

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Note 9 – Investments in Marketable Securities

Our investments in marketable equity securities are carried at fair value with the changes in unrealized gains and losses recognized in our results of operations at each measurement date. Our investments in marketable debt securities are classified as available for sale securities and carried at fair value with the unrealized gains and losses recognized through accumulated other comprehensive income at each measurement date. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 10 - Fair Value Measurements for a description of the Company's methodology for determining the fair value of marketable securities.

Marketable securities and restricted marketable securities consist of the following (in thousands):

	September 30, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investments available for sale:
Marketable equity securities	$	30,176	$	139,502	$	30,176	$	139,085
Restricted investments available for sale:
Corporate debt securities		67,905		66,190		65,107		65,461
Commercial mortgage–backed securities		57,626		56,293		54,030		53,544
U.S. Treasury securities		23,497		22,540		21,685		21,172
State and municipal securities		23,679		23,011		26,455		26,218
	$	202,883	$	307,536	$	197,453	$	305,480

Included in the marketable equity securities are the following (in thousands, except share amounts):

	September 30, 2018						December 31, 2017
	Shares		Cost		Fair Value		Shares		Cost		Fair Value
NHI Common Stock		1,630,642	$	24,734	$	123,260		1,630,642	$	24,734	$	122,918

The amortized cost and estimated fair value of the marketable debt securities classified as available for sale, by contractual maturity, are as follows (in thousands):

	September 30, 2018				December 31, 2017
	Cost		Fair Value		Cost		Fair Value
Maturities:
Within 1 year	$	19,273	$	19,220	$	18,492	$	18,499
1 to 5 years		88,952		87,276		70,331		70,157
6 to 10 years		63,282		60,340		77,657		76,943
Over 10 years		1,200		1,198		797		796
	$	172,707	$	168,034	$	167,277	$	166,395

Gross unrealized gains related to marketable equity securities are $109,331,000 and $108,933,000 as of September 30, 2018 and December 31, 2017, respectively. Gross unrealized losses related to marketable equity securities are $5,000 and $24,000 as of September 30, 2018 and December 31, 2017, respectively. For the three months and nine months ended September 30, 2018, the Company recognized a net unrealized gain of $3,486,000 and $417,000, respectively, for the change in market value of the marketable equity securities in the interim condensed consolidated statements of operations.

Gross unrealized gains related to available for sale marketable debt securities are $73,000 and $823,000 as of September 30, 2018 and December 31, 2017, respectively. Gross unrealized losses related to available for sale marketable debt securities are $4,746,000 and $1,705,000 as of September 30, 2018 and December 31, 2017, respectively.

For the marketable securities in gross unrealized loss positions, (a) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (b) the Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized no other-than-temporary impairment during the nine months ended September 30, 2018 or for the year ended December 31, 2017.

Proceeds from the sale of available for sale marketable debt securities during the nine months ended September 30, 2018 and 2017 were $4,539,000 and $46,598,000, respectively. Investment gains of $18,000 and $255,000 were realized on these sales during the nine months ended September 30, 2018 and 2017, respectively. No sales were reported for the marketable equity securities for the nine months ended September 30, 2018 and 2017, respectively.

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Note 10 – Fair Value Measurements

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value:

Level 1 – The valuation is based on quoted prices in active markets for identical instruments.

Level 2 – The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model–based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following table summarizes fair value measurements by level at September 30, 2018 and December 31, 2017 for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements Using
September 30, 2018	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	55,599	$	55,599	$	–	$	–
Restricted cash and cash equivalents		12,134		12,134		–		–
Marketable equity securities		139,502		139,502		–		–
Corporate debt securities		66,190		43,901		22,289		–
Mortgage–backed securities		56,293		–		56,293		–
U.S. Treasury securities		22,540		22,540		–		–
State and municipal securities		23,011		–		23,011		–
Total financial assets	$	375,269	$	273,676	$	101,593	$	–

	Fair Value Measurements Using
December 31, 2017	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	59,118	$	59,118	$	–	$	–
Restricted cash and cash equivalents		8,303		8,303		–		–
Marketable equity securities		139,085		139,085		–		–
Corporate debt securities		65,461		43,073		22,388		–
Mortgage-backed securities		53,544		–		53,544		–
U.S. Treasury securities		21,172		21,172		–		–
State and municipal securities		26,218		–		26,218		–
Total financial assets	$	372,901	$	270,751	$	102,150	$	–

Note 11 – Long–Term Debt

Long–term debt consists of the following:

	Weighted Average Interest Rate		Maturities		September 30, 2018		December 31, 2017
	Variable				(dollars in thousands)
Credit Facility, interest payable monthly		3.6%		2020	$	75,000	$	90,000
Unsecured term note payable to National, interest payable quarterly, principal payable at maturity		4.5%		2028		–		10,000
						75,000		100,000
Less current portion						–		–
					$	75,000	$	100,000

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$150,000,000 Credit Facility

During the second quarter of 2018, the Company lowered the available borrowing capacity of the credit facility from $175 million to $150 million.  The credit facility has a five-year maturity date (October 2020). Loans bear interest at either (i) LIBOR plus 1.40% or (ii) the base rate plus 0.40%.

Note 12 - Stock Repurchase Program

In August 2018, the Board of Directors authorized a common stock purchase program. The program will allow for repurchases of up to $25 million of its common stock. No repurchases have been made under this plan. Under the previous plan which expired on August 31, 2018, the Company repurchased 14,506 shares of its common stock for a total cost of $867,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

Note 13 – Stock–Based Compensation

NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled $361,000 and $430,000 for the three months ended September 30, 2018 and 2017, respectively. Stock-based compensation totaled $1,538,000 and $1,263,000 for the nine months ended September 30, 2018 and 2017, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

At September 30, 2018, the Company had $5,728,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate three-year period.

Stock Options

The following table summarizes the significant assumptions used to value the options granted for the nine months ended September 30, 2018 and for the year ended December 31, 2017.

	September 30, 2018		December 31, 2017
Risk–free interest rate		2.5%		2.1%
Expected volatility		16.1%		16.6%
Expected life, in years		3.0		4.8
Expected dividend yield		3.3%		3.1%

The following table summarizes our outstanding stock options for the nine months ended September 30, 2018 and for the year ended December 31, 2017.

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2017		177,959		$	55.48	$	–
Options granted		1,125,443			72.96		–
Options exercised		(48,995	)		51.25		–
Options cancelled		(15,000	)		72.94		–
Options outstanding at December 31, 2017		1,239,407			71.19		–
Options granted		110,821			61.40		–
Options exercised		(33,526	)		51.25		–
Options cancelled		(50,000	)		72.94		–
Options outstanding at September 30, 2018		1,266,702		$	70.79	$	5,800,000
Options vested at September 30, 2018		210,881		$	63.35	$	2,535,000

Options Outstanding September 30, 2018		Exercise Prices			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
	218,427	$52.93	-	$62.78	$	60.48		2.7
	1,048,275		$72.94			72.94		3.4
	1,266,702				$	70.79		3.3

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Note 14 – Income Taxes

The income tax provision for the three months ended September 30, 2018 is $1,700,000 (an effective income tax rate of 7.5%). The income tax provision for the three months ended September 30, 2017 was $4,691,000 (an effective income tax rate of 29.5%). The income tax provision and effective tax rate for the three months ended September 30, 2018 was favorably impacted by the following: (1) a tax benefit of $547,000 related to the gain on acquisition of equity method investment; (2) a tax benefit of $2,222,000 related to statute of limitation expirations; and (3) a tax benefit of $1,434,000 related to a provision to return adjustment on the Company’s 2017 federal and state income tax returns, resulting in a net decrease in the provision.

The income tax provision for the nine months ended September 30, 2018 is $9,792,000 (an effective income tax rate of 19.5%). The income tax provision and effective tax rate for the nine months ended September 30, 2018 were unfavorably impacted by nondeductible expenses of $945,000 (primarily the non-deductible portion of the settlement of the Caris HealthCare, L.P. Qui Tam legal matter) or 1.9% of income before taxes for the nine months. The income tax provision for the nine months ended September 30, 2018 was favorably impacted by the following: (1) a tax benefit of $547,000 related to the gain on acquisition of equity method investment; (2) a tax benefit of $2,222,000 related to statute of limitation expirations; and (3) a tax benefit of $1,434,000 related to a provision to return adjustment on the Company’s 2017 federal and state income tax returns. The income tax provision for the nine months ended September 30, 2017 was $19,448,000 (an effective income tax rate of 36.1%). The income tax provision and effective tax rate for the nine months ended September 30, 2017 were favorably impacted by statute of limitations expirations resulting in a benefit to the provision of $1,753,000 or 3.3% of income before taxes in 2017.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act") was signed into law making significant changes to the Internal Revenue Code.  The SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the 2017 Tax Act.  As of December 31, 2017, we made a reasonable estimate that the revaluation of our net deferred tax liability using the new federal corporate tax rates resulted in a provisional net tax benefit of $8,488,000, which reduced our net deferred tax liability balance.  This amount continues to be a provisional adjustment as of September 30, 2018.  We will recognize any changes to provisional amounts as we continue to analyze the existing statute or as additional guidance becomes available.  We expect to complete our analysis of the provisional amounts by the end of 2018.  

Interest and penalties expense related to U.S. federal and state income tax returns are included within income tax expense.

The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2015 (with certain state exceptions).

Note 15 – 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 $95,787,000 and $93,275,000 at September 30, 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 September 30, 2018, we and/or our managed centers are currently defendants in 65 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.

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 September 30, 2018, National did not have an outstanding balance on the line of credit.

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Caris HealthCare, L.P. Investigation and Related Litigation

                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 alleged 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. 

                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.  That settlement was finalized on June 25, 2018, in which Caris agreed to pay $8.5 million plus interest for a full release associated with the alleged submission of false claims and alleged retention of overpayments from Medicare for hospice services provided between April 1, 2010, and December 31, 2013. On June 28, 2018, the District Court entered an Order in connection with the parties’ Joint Stipulation of Dismissal, which dismissed the action with prejudice as to the Hinkle and Hinkle’s bankruptcy trustee, with prejudice to the United States with respect to the conduct released by the settlement, and without prejudice to the United States with respect to all remaining claims. The District Court’s Order concludes this litigation.

Nutritional Support Services, L.P., Qui Tam Litigation

On June 19, 2018, a First Amended Complaint was filed naming Nutritional Support Services, L.P. (“NSS”), a wholly-owned subsidiary of the Company, as a defendant in the action captioned U.S. ex rel. McClain v. Nutritional Support Services, L.P., No. 6:17-cv-2608-AMQ (D.S.C.), which was filed in the United States District Court for the District of South Carolina. The action alleges that NSS violated the False Claims Act by reporting a National Drug Code (“NDC”) number that did not correspond to the NDC for dispensed prescriptions. On April 16, 2018, the United States filed a Notice of Election to Decline Intervention with respect to the allegations asserted in this action. NSS intends to vigorously defend itself with respect to this action.

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.

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

Overview

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. We operate or manage, through certain affiliates, 76 skilled nursing facilities with a total of 9,604 licensed beds, 24 assisted living facilities, five independent living facilities, one geriatric psychiatric hospital, and 35 homecare programs. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. We also have a non-controlling ownership interest in a hospice care business that services NHC owned health care centers and others. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing centers. We operate in 10 states and are located primarily in the southeastern United States.

Summary of Goals and Areas of Focus

Occupancy

A primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities. The overall census in owned and leased skilled nursing facilities for the nine months ending September 30, 2018 was 89.7% compared to 90.4% for the same period a year ago. With the average length of stay decreasing for a skilled nursing patient, as well as the increased availability of assisted living facilities and home and community-based services, the challenge of maintaining desirable patient census levels has been amplified. Management has undertaken a number of steps in order to best position our current and future health care facilities. This includes working internally to examine and improve systems to be most responsive to referral sources and payors. Additionally, NHC is in various stages of partnerships with hospital systems, payors, and other post–acute alliances to better position ourselves so we are an active participant in the delivery of post-acute healthcare services.

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Quality of Patient Care

The Centers for Medicare and Medicaid Services (“CMS”) introduced the Five-Star Quality Rating System to help consumers, their families and caregivers compare skilled nursing facilities more easily. The Five-Star Quality Rating System gives each skilled nursing operation a rating of between one and five stars in various categories (five stars being the best). The Company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance. The table below summarizes our overall performance in these quality ratings:

	As of
	Sept. 30, 2018		Dec. 31, 2017		Dec. 31, 2016
Total number of skilled nursing facilities		76		76		74
Number of 4 and 5-star rated skilled nursing facilities		66		62		54
Percentage of 4 and 5-star rated skilled nursing facilities		87%		82%		73%

Development and Growth

We are undertaking to expand our senior care operations while protecting our existing operations and markets. The following table lists our recent development activities.

Type of Operation	Description	Size	Location	Placed in Service
SNF	New Facility	112 beds	Columbia, TN	January, 2017
ALF	New Facility	78 units	Bluffton, SC	March, 2017
ALF	New Facility	80 units	Garden City, SC	June, 2017
Memory Care	Bed Addition	23 units	Murfreesboro, TN	July, 2017
SNF	Bed Addition	30 beds	Springfield, MO	April, 2018
Memory Care	New Facility	60 beds	Farragut, TN	Under construction

For the project under construction at September 30, 2018, the 60-bed memory care facility in Farragut, Tennessee is expected to open in the fourth quarter of 2018.

Accrued Risk Reserves

Our accrued professional liability and workers’ compensation reserves totaled $95,787,000 at September 30, 2018 and are a primary area of management focus. We have set aside restricted cash and cash equivalents and restricted marketable securities to fund our estimated professional liability and workers’ compensation liabilities.

As to exposure for professional liability claims, we have developed performance certification criteria to measure and bring focus to the patient care issues most likely to produce professional liability exposure, including in–house acquired pressure ulcers, significant weight loss and numbers of falls. These programs for certification, which we regularly modify and improve, have produced measurable improvements in reducing these incidents. Our experience is that achieving goals in these patient care areas improves both patient and employee satisfaction.

Government Program Financial Changes

Medicare – Skilled Nursing Facilities

In July 2018, CMS released its final rule outlining the fiscal year 2019 Medicare payments and policy changes for skilled nursing facilities. The 2019 final rule provided for an approximate 2.4% market basket update that was spelled out in the Bipartisan Budget Act of 2018, resulting in an increase in overall payments to skilled nursing facilities in fiscal year 2019 by $820 million compared to fiscal year 2018 levels. Also, starting on October 1, 2019, CMS plans to start using a new case-mix model, called the Patient-Driven Payment Model (PDPM), which focuses on a resident’s condition and care needs, rather than the amount of care provided, to determine reimbursement levels. The PDPM replaces the existing case-mix classification methodology, the Resource Utilization Groups, Version IV (RUG-IV) model, used to categorize Part A residents into various payment groups based on their level of need. The new PDPM is expected to better account for patient characteristics by relating payment to patients' conditions and clinical needs rather than on volume-based services. The PDPM is also expected to reduce systemic complexity and save skilled nursing facilities approximately $2.0 billion over 10 years in administrative costs. Under the new rule, CMS is finalizing changes to the Skilled Nursing Facilities Value-based Purchasing Program. Scoring for methodology for low-volume providers will be updated, as will an extraordinary-exemption policy.

In July 2017, CMS released its final rule outlining the fiscal year 2018 Medicare payments and policy changes for skilled nursing facilities. The 2018 final rule provided for an approximate 1.0% rate update, which began October 1, 2017. CMS estimated a 2.7% market basket increase reduced by 0.4% for a multifactor productivity adjustment required by the Affordable Care Act (“ACA”); however, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) mandated that all post-acute care providers receive a maximum market basket update of 1% in fiscal year 2018 to offset part of the cost of the legislation. CMS estimates the update will increase overall payments to skilled nursing facilities in fiscal year 2018 by $370 million compared to fiscal year 2017 levels.

For the first nine months of 2018, our average Medicare per diem rate for skilled nursing facilities increased 0.1% compared to the same period in 2017.

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Medicaid – Skilled Nursing Facilities

Effective July 1, 2018 and for the fiscal year 2019, the state of Tennessee implemented specific individual nursing facility rate increases. We estimate the resulting increase in revenue for the 2019 fiscal year will be approximately $2,100,000 annually, or $525,000 per quarter.

Effective October 1, 2018 and for the fiscal year 2019, South Carolina implemented specific individual nursing facility rate changes. The resulting increase in revenue beginning October 1, 2018 will be approximately $2,200,000 annually, or $550,000 per quarter.

For the fiscal year 2019, the state of Missouri is in the process of implementing per patient day rate increases. We currently estimate the resulting increase in revenue for the 2019 fiscal year will be approximately $2,000,000 annually, or $500,000 per quarter. Although the Missouri state legislation has approved the per diem increase, the state is currently waiting on CMS’ approval. We expect these rate increases to be implemented during the fourth quarter of 2018 and paid retroactively to July 1, 2018.

For the first nine months of 2018, our average Medicaid per diem increased 1.9% compared to the same period in 2017. We face challenges with respect to states’ Medicaid payments, because many currently do not cover the total costs incurred in providing care to those patients. States will continue to control Medicaid expenditures and also look for adequate funding sources, including provider assessments. There are several pieces of legislation that include provisions designed to reduce Medicaid spending. These provisions include, among others, provisions strengthening the Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long-term care coverage, which could, due to the timing of the penalty period, increase facilities’ exposure to uncompensated care. Other provisions could increase state funding for home and community-based services, potentially having an impact on funding for nursing facilities.

Medicare – Homecare Programs

Effective January 1, 2018, CMS estimated the net impact of the 2018 home health PPS rates would result in a 0.4% decrease ($80 million) for home health agencies. This decrease reflects the effects of a 1.0% home health payment update percentage; a -0.97% percent adjustment to the national, standardized 60-day episode payment rate to account for nominal case-mix growth; and the sunset of the rural add-on provision for an impact of -0.5%. The rule also finalizes proposals for the Home Health Value-Based Purchasing (HHVBP) Model and the Home Health Quality Reporting Program (HH QRP).

Segment Reporting

The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our geriatric psychiatric hospital; (2) homecare services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as CODM, to assess performance and allocate resources.

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note 2 - Summary of Significant Accounting Policies.

The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to enhance the quality of patient care and profitability of the Company while enhancing long-term shareholder value. Our CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.

The following tables set forth the Company’s unaudited condensed consolidated statements of operations by business segment (in thousands):

	Three Months Ended September 30, 2018
	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	220,099	$	14,728	$	–		$	234,827
Other revenues		136		–		11,363			11,499
Net operating revenues		220,235		14,728		11,363			246,326
Costs and expenses:
Salaries, wages and benefits		131,418		8,367		9,403			149,188
Other operating		57,371		4,797		2,339			64,507
Rent		8,255		488		1,447			10,190
Depreciation and amortization		9,570		55		812			10,437
Interest		369		–		801			1,170
Total costs and expenses		206,983		13,707		14,802			235,492
Income (loss) from operations		13,252		1,021		(3,439	)		10,834
Non-operating income		–		–		8,467			8,467
Unrealized gains on marketable equity securities		–		–		3,486			3,486
Income before income taxes	$	13,252	$	1,021	$	8,514		$	22,787

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	Three Months Ended September 30, 2017
(As adjusted)	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	213,814	$	15,445	$	–		$	229,259
Other revenues		181		–		11,756			11,937
Net operating revenues		213,995		15,445		11,756			241,196
Costs and expenses:
Salaries, wages and benefits		128,403		8,318		9,179			145,900
Other operating		56,062		5,291		1,897			63,250
Rent		8,128		502		1,476			10,106
Depreciation and amortization		9,756		41		1,036			10,833
Interest		423		–		899			1,322
Total costs and expenses		202,772		14,152		14,487			231,411
Income (loss) from operations		11,223		1,293		(2,731	)		9,785
Non-operating income		–		–		6,090			6,090
Income before income taxes	$	11,223	$	1,293	$	3,359		$	15,875

	Nine Months Ended September 30, 2018
	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	652,066	$	45,107	$	–		$	697,173
Other revenues		588		–		33,668			34,256
Net operating revenues		652,654		45,107		33,668			731,429
Costs and expenses:
Salaries, wages and benefits		382,913		25,009		26,827			434,749
Other operating		171,275		14,816		6,177			192,268
Rent		24,780		1,460		4,451			30,691
Depreciation and amortization		28,602		137		2,437			31,176
Interest		1,149		–		2,514			3,663
Total costs and expenses		608,719		41,422		42,406			692,547
Income (loss) from operations		43,935		3,685		(8,738	)		38,882
Non-operating income		–		–		11,056			11,056
Unrealized gains on marketable equity securities		–		–		417			417
Income before income taxes	$	43,935	$	3,685	$	2,735		$	50,355

	Nine Months Ended September 30, 2017
(As adjusted)	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	636,311	$	47,287	$	–		$	683,598
Other revenues		631		–		34,200			34,831
Net operating revenues		636,942		47,287		34,200			718,429
Costs and expenses:
Salaries, wages and benefits		373,641		24,760		28,238			426,639
Other operating		167,454		15,484		5,584			188,522
Rent		24,552		1,490		4,231			30,273
Depreciation and amortization		28,362		120		3,127			31,609
Interest		1,309		–		2,290			3,599
Total costs and expenses		595,318		41,854		43,470			680,642
Income (loss) from operations		41,624		5,433		(9,270	)		37,787
Non-operating income		–		–		16,047			16,047
Income before income taxes	$	41,624	$	5,433	$	6,777		$	53,834

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Non-GAAP Financial Presentation

The Company is providing certain non-GAAP financial measures as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company’s operations and measure the Company’s performance more consistently across periods. Therefore, the Company believes this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Specifically, the Company believes the presentation of non-GAAP financial information that excludes the unrealized gains or losses on our marketable equity securities, operating results for the newly constructed healthcare facilities not at full capacity, share-based compensation expense, legal costs and charges related to the settlement of a Qui Tam investigation within our Caris hospice partnership, a gain due to the acquisition of an equity method investment, a gain in the prior year on the sale of assets within an equity method investment, and a tax provision to tax return adjustment after the Company filed our 2017 income tax returns.

The operating results for the three newly constructed healthcare facilities not at full capacity consist of one skilled nursing facility and two assisted living facilities that opened during 2017.

The table below provides reconciliations of GAAP to non-GAAP items (dollars in thousands, except per share data):

	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
Net income attributable to National Healthcare Corporation	$	21,142		$	11,352		$	40,812		$	34,735
Non-GAAP adjustments:
Unrealized gains on marketable equity securities		(3,486	)		–			(417	)		–
Legal costs and charges related to Caris' legal investigation		–			757			8,364			1,239
Operating results for newly opened facilities not at full capacity		492			976			947			2,725
Gain on acquisition of equity method investment		(2,050	)		–			(2,050	)		–
Gain on sale of assets within equity method investment		–			(1,305	)		–			(1,305	)
Stock-based compensation expense		361			430			1,538			1,263
Tax provision adjustment on 2017 filed income tax returns		(1,434	)		–			(1,434	)		–
Provision of income taxes on non-GAAP adjustments		685			(335	)		(1,884	)		(1,530	)
Non-GAAP Net income	$	15,710		$	11,875		$	45,876		$	37,127
GAAP diluted earnings per share	$	1.39		$	0.75		$	2.68		$	2.28
Non-GAAP adjustments:
Unrealized gains on marketable equity securities		(0.17	)		–			(0.02	)		–
Legal costs and charges related to Caris' legal investigation		–			0.02			0.46			0.05
Operating results for newly opened facilities not at full capacity		0.02			0.04			0.05			0.11
Gain on acquisition of equity method investment		(0.13	)		–			(0.13	)		–
Gain on sale of assets within equity method investment		–			(0.05	)		–			(0.05	)
Stock-based compensation expense		0.02			0.02			0.07			0.05
Tax provision adjustment on 2017 filed income tax returns		(0.10	)		–			(0.10	)		–
Non-GAAP diluted earnings per share	$	1.03		$	0.78		$	3.01		$	2.44

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Results of Operations

The following table and discussion sets forth items from the interim condensed consolidated statements of operations as a percentage of net operating revenues for the three months and nine months ended September 30, 2018 and 2017.

Percentage of Net Operating Revenues

	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
Net operating revenues:		100.0	%		100.0	%		100	%		100	%
Costs and expenses:
Salaries, wages and benefits		60.6			60.5			59.4			59.4
Other operating		26.2			26.2			26.3			26.2
Facility rent		4.1			4.2			4.2			4.2
Depreciation and amortization		4.2			4.5			4.3			4.4
Interest		0.5			0.5			0.5			0.5
Total costs and expenses		95.6			95.9			94.7			94.7
Income from operations		4.4			4.1			5.3			5.3
Non–operating income		3.4			2.5			1.6			2.2
Unrealized gains/losses on marketable equity securities		1.4			-			0.1			-
Income before income taxes		9.2			6.6			7.0			7.5
Income tax provision		(0.7	)		(1.9	)		(1.3	)		(2.7	)
Net income		8.5			4.7			5.7			4.8
Net loss attributable to noncontrolling interest		-			0.1			-			-
Net income attributable to NHC		8.5			4.8			5.7			4.8

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

Results for the quarter ended September 30, 2018 compared to the third quarter in 2017 include a 2.1% increase in net operating revenues and a 10.7% increase in income from operations. For the three months ended September 30, 2018 compared to the same quarter in 2017, income before income taxes increased 43.5% and net income attributable to NHC increased 86.2%.  Excluding the unrealized gains in our marketable equity securities during the third quarter of 2018 compared to the same quarter in 2017, income before income taxes increased 21.6% and net income attributable to NHC increased 63.5%.

Net operating revenues

Net patient revenues increased $5,568,000, or 2.4%, compared to the same period last year. There are three newly constructed healthcare facilities (one skilled nursing facility and two assisted living facilities) placed in service during 2017 that continue to stabilize during 2018. These new healthcare facilities increased net patient revenues $761,000 compared to the same period a year ago. In July 2018, we acquired a controlling financial interest in a 14-bed geriatric psychiatric hospital located in Osage Beach, Missouri. This geriatric psychiatric hospital increased net patient revenues $1,077,000 compared to the same period a year ago. The remaining increase in our net patient revenues is primarily due to our existing skilled nursing facility operations.

The total census at owned and leased skilled nursing facilities for the quarter averaged 90.1% compared to an average of 90.4% for the same quarter a year ago. Our Medicare per diem rates increased 0.7% and Managed Care per diem rates decreased 0.6% compared to the same quarter a year ago. Our Medicaid and private pay per diem rates increased 1.7% and 4.3%, respectively, compared to the same quarter a year ago. Overall, the composite skilled nursing facility per diem at our owned and leased skilled nursing facilities increased 1.2% compared to the same quarter a year ago.

Other revenues decreased $438,000, or 3.7%, compared to the same quarter last year, as further detailed in Note 4 to our interim condensed consolidated financial statements.

Total costs and expenses

Total costs and expenses for the third quarter of 2018 compared to the third quarter of 2017 increased $4,081,000 or 1.8%, to $235,492,000 from $231,411,000.

Salaries, wages and benefits increased $3,288,000, or 2.3%, to $149,188,000 from $145,900,000. Salaries, wages and benefits as a percentage of net operating revenue was 60.6% compared to 60.5% for the three months ended September 30, 2018 and 2017, respectively. The newly constructed healthcare facilities placed in service during 2017 increased salaries, wages and benefits by $219,000 compared to the same period a year ago. The newly-acquired geriatric psychiatric hospital increased salaries, wages and benefits $427,000 compared to the same period a year ago. The remaining increase in our salaries, wages and benefits is primarily due to our existing skilled nursing facility operations. We continue to closely monitor and address the wage pressures we feel in most of the markets in which we operate. There is substantial effort and resources being deployed to retain and recruit talented partners.

Other operating expenses increased $1,257,000, or 2.0%, to $64,507,000 for the 2018 period compared to $63,250,000 for the 2017 period. Other operating expenses as a percentage of net operating revenue was 26.2% for both the three months ended September 30, 2018 and 2017. The newly-acquired geriatric psychiatric hospital increased other operating expenses $406,000 compared to the same period a year ago.

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Other income

Non–operating income increased by $2,377,000 compared to the same period last year, as further detailed in Note 5 to our interim condensed consolidated financial statements. The increase in non-operating income is primarily due to the gain of $2,050,000 recorded on the acquisition of a controlling financial interest in a 14-bed geriatric psychiatric hospital in Osage Beach, Missouri. We previously held a noncontrolling ownership interest and an equity method investment in this hospital. In July 2018 upon acquiring the controlling ownership interest, we had to value the business and our previously held equity position based upon the hospital’s fair value.

Effective January 1, 2018, the new accounting pronouncement of ASU No. 2016–01, “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825)”, requires that the change in the fair value of our marketable equity securities be recognized in net income. Therefore, we recorded unrealized gains in the amount of $3,486,000 for the increase in fair value of our marketable equity securities portfolio during the third quarter of 2018. The marketable equity securities portfolio consists of publicly-traded healthcare REIT’s, with NHI comprising approximately 88% of the market value of the portfolio at September 30, 2018.

Income taxes and noncontrolling interest      

The income tax provision for the three months ended September 30, 2018 is $1,700,000 (an effective income tax rate of 7.5%), as further detailed in Note 14 to our interim condensed consolidated financial statements. Excluding nondeductible expenses, we expect our corporate income tax rate for 2018 to be approximately 26%, which is down from approximately 39% in 2017.

The noncontrolling interest in a subsidiary is: (1) the joint venture operations of a skilled nursing facility in Columbia, Tennessee. This facility opened and began operating in January 2017 in which NHC owns 80% of the operating entity and Maury Regional Medical Center owns 20% of the entity; (2) the joint venture operations of a 14-bed geriatric psychiatric hospital in Osage Beach, Missouri in which NHC owns 80% of the operating entity and Reliant Healthcare owns the remaining 20% of the entity. 

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

Results for the nine months ended September 30, 2018 compared to the same nine months of 2017 include a 1.8% increase in net operating revenues and a 2.9% increase in income from operations. For the nine months ended September 30, 2018 compared to the same nine months of 2017, income before income taxes decreased 6.5% and net income attributable to NHC increased 17.5%.  Excluding the unrealized gains in our marketable equity securities and Caris’ Qui Tam settlement (including legal fees) for the nine months ended September 30, 2018 compared to the same nine months of 2017, income before income taxes increased 5.9% and net income attributable to NHC increased 33.9%.

Net operating revenues

Net patient revenues increased $13,575,000, or 2.0%, compared to the same period last year. There are three newly constructed healthcare facilities (one skilled nursing facility and two assisted living facilities) placed in service during 2017 that continue to stabilize during 2018. These new healthcare facilities increased net patient revenues $4,287,000 compared to the same period a year ago. In July 2018, we acquired a controlling financial interest in a 14-bed geriatric psychiatric hospital located in Osage Beach, Missouri. This geriatric psychiatric hospital increased net patient revenues $1,077,000 compared to the same nine-month period a year ago. The remaining increase in our net patient revenues is primarily due to our existing skilled nursing facility operations.

The total census at owned and leased skilled nursing facilities for the nine-month period averaged 89.7% compared to an average of 90.4% for the same period a year ago. Our Medicare per diem rates increased 0.1% and Managed Care per diem rates decreased 1.7% compared to the same period a year ago. Medicaid and private pay per diem rates increased 1.9% and 3.0%, respectively, compared to the same period a year ago. Overall, the composite skilled nursing facility per diem at our owned and leased skilled nursing facilities increased 1.1% compared to the same period a year ago.

Other revenues decreased $575,00, or 1.7%, compared to the same period last year, as further detailed in Note 4 to our interim condensed consolidated financial statements.

Total costs and expenses

Total costs and expenses for the first nine months of 2018 compared to the first nine months of 2017 increased $11,905,000 or 1.7%, to $692,547,000 from $680,642,000.

Salaries, wages and benefits increased $8,110,000, or 1.9%, to $434,749,000 from $426,639,000. Salaries, wages and benefits as a percentage of net operating revenue was 59.4% for both the nine-month periods ended September 30, 2018 and 2017. The newly constructed healthcare facilities placed in service during 2017 increased salaries, wages and benefits by $907,000 compared to the same period a year ago. The newly-acquired geriatric psychiatric hospital increased salaries, wages and benefits $427,000 compared to the same period a year ago. The remaining increase in our salaries, wages and benefits is primarily due to our existing skilled nursing facility operations. We continue to closely monitor and address the wage pressures we feel in most of the markets in which we operate. There is substantial effort and resources being deployed to retain and recruit talented partners.

Other operating expenses increased $3,746,000, or 2.0%, to $192,268,000 for the 2018 period compared to $188,522,000 for the 2017 period. Other operating expenses as a percentage of net operating revenue was 26.3% compared to 26.2% for the nine-month periods ended September 30, 2018 and 2017, respectively. The newly constructed healthcare facilities increased other operating expenses compared to the nine-month period a year ago by $956,000. The newly-acquired geriatric psychiatric hospital increased other operating expenses $406,000 compared to the same period a year ago.

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 Other income (expense)

Non–operating income decreased by $4,991,000 compared to the same period last year, as further detailed in Note 5 to our interim condensed consolidated financial statements. The decrease in non-operating income is primarily due from:

Our equity in earnings investment in our Caris hospice operations. During 2018, Caris recorded a charge to earnings of $8,500,000 for the settlement of a Qui Tam investigation, of which 75.1% is included in the Company's earnings. In total, with the $8.5 million settlement and legal expenses, Caris’ earnings negatively impacted NHC’s non-operating income by $8,364,000 for the nine months ended September 30, 2018. For the nine months ended September 30, 2017, Caris had legal expenses in connection with the Qui Tam investigation that negatively impacted NHC’s non-operating income by $1,239,000.

In July 2018, a gain of $2,050,000 was recorded on the acquisition of a controlling financial interest in a 14-bed geriatric psychiatric hospital in Osage Beach, Missouri. We previously held a noncontrolling ownership interest and equity method investment in this hospital. Upon acquiring the controlling ownership interest, we had to value the business and our previously held equity position based upon the hospital’s fair value.

Effective January 1, 2018, the new accounting pronouncement of ASU No. 2016–01, “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825)”, requires that the change in the fair value of our marketable equity securities be recognized in net income. Therefore, we recorded unrealized gains in the amount of $417,000 for the increase in fair value of our marketable equity securities portfolio for the nine months ended September 30, 2018. The marketable equity securities portfolio consists of publicly-traded healthcare REIT’s, with NHI comprising approximately 88% of the market value of the portfolio at September 30, 2018.

Income taxes and noncontrolling interest      

The income tax provision for the nine-month period ended September 30, 2018 is $9,792,000 (an effective income tax rate of 19.5%), as further detailed in Note 14 to our interim condensed consolidated financial statements. Excluding nondeductible expenses, we expect our corporate income tax rate for 2018 to be approximately 26%, which is down from approximately 39% in 2017.

The noncontrolling interest in a subsidiary is: (1) the joint venture operations of a skilled nursing facility in Columbia, Tennessee. This facility opened and began operating in January 2017 in which NHC owns 80% of the operating entity and Maury Regional Medical Center owns 20% of the entity; (2) the joint venture operations of a 14-bed geriatric psychiatric hospital in Osage Beach, Missouri in which NHC owns 80% of the operating entity and Reliant Healthcare owns the remaining 20% of the entity.

Liquidity, Capital Resources, and Financial Condition

Our primary sources of cash include revenues from the operations of our healthcare and senior living facilities, management and accounting services, rental income, and investment income. Our primary uses of cash include salaries, wages and other operating costs of our healthcare and senior living facilities, the cost of additions to and acquisitions of real property, facility rent expenses, and dividend distributions. These sources and uses of cash are reflected in our interim condensed consolidated statements of cash flows and are discussed in further detail below.

The following is a summary of our sources and uses of cash flows (dollars in thousands):

	Nine Months Ended September 30						Nine Month Change
	2018			2017			$			%
Cash, cash equivalents, restricted cash and restricted cash equivalents, at beginning of period	$	67,421		$	31,589		$	35,832			113.4	%
Cash provided by operating activities		77,066			70,995			6,071			8.6	%
Cash provided by (used in) investing activities		(27,090	)		1,190			(28,280	)		(2,376.5	)%
Cash used in financing activities		(49,664	)		(22,034	)		(27,630	)		(125.4	)%
Cash, cash equivalents, restricted cash and restricted cash equivalents, at end of period	$	67,733		$	81,740		$	(14,007	)		(17.1	)%

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Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2018 was $77,066,000 as compared to $70,995,000 in the same period last year. Cash provided by operating activities consisted of net income of $40,563,000, adjustments for non–cash items of $31,314,000, cash distributions from unconsolidated investments of $3,830,000, and operating losses within our unconsolidated investments of $1,860,000. The losses within our unconsolidated investments was impacted by Caris’ Qui Tam settlement, including legal fees, of $8,364,000. There was cash used for working capital needs in the amount of $483,000 for the nine months ended September 30, 2018 compared to cash provided by working capital in the amount to $1,271,000 for the same period a year ago.

Investing Activities

Net cash used in investing activities totaled $27,090,000 for the nine months ended September 30, 2018 compared to cash provided by investing activities of $1,190,000 for the nine months ended September 30, 2017. Cash used for property and equipment additions was $22,708,000 for the nine months ended September 30, 2018 compared to $24,328,000 for the same period in 2017. In July 2018, the Company acquired a controlling ownership interest in a 14-bed geriatric psychiatric hospital in Osage Beach, Missouri for $527,000, which is net of the cash acquired from the hospital operations. The Company collected notes receivable of $1,180,000 and $3,970,000 for the nine months ended September 30, 2018 and 2017, respectively. Purchases of restricted marketable securities, net of sales, resulted in cash used of $5,411,000 for the nine months ended September 30, 2018. Sales of restricted marketable securities, net of purchases, resulted in cash provided by investing activities of $21,724,000 for the nine months ended September 30, 2017.

In 2018, construction and development costs included in additions to property and equipment include $7,128,000 for the construction of the 60-unit memory care facility located in Farragut, Tennessee and $2,234,000 for the 30-bed addition to a skilled nursing facility in Springfield, Missouri.

Financing Activities 

Net cash used in financing activities totaled $49,664,000 and $22,034,000 for the nine months ending September 30, 2018 and 2017, respectively. There was $25,000,000 of cash used for principal payments on long-term debt compared to $0 in the prior year period. Cash used for dividend payments to common stockholders totaled $22,214,000 in the current year period compared to $20,943,000 for the same period in 2017. In the current period, $1,327,000 was provided by the issuance of common stock compared to $1,627,000 in the prior year period. In the current period, repurchases of common stock totaled $867,000 compared to $0 in the prior year period.

Table of Contractual Obligations

Our contractual obligations as of September 30, 2018 are as follows (in thousands):

	Total		1 year		2–3 Years		4–5 Years		After 5 Years
Long–term debt – principal	$	75,000	$	−	$	75,000	$	−	$	−
Long–term debt – interest		5,516		2,731		2,785		−		−
Operating leases		287,900		34,200		68,400		68,400		116,900
Construction obligations		2,876		2,876		−		−		−
Capital lease obligations		28,167		5,200		10,400		10,400		2,167
Total contractual cash obligations	$	399,459	$	45,007	$	156,585	$	78,800	$	119,067

We started paying quarterly dividends on our common shares outstanding in 2004. We anticipate the continuation of the dividend payment as approved quarterly by the Board of Directors.

Short–term liquidity

We expect to meet our short-term liquidity requirements primarily from our cash flows from operating activities. In addition to cash flows from operations, our current cash on hand of $55,599,000, marketable securities of $139,502,000, and as needed, our borrowing capacity on the credit facility, are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months.

Long–term liquidity

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $55,599,000, marketable securities of $139,502,000, and our borrowing capacity on the credit facility. At September 30, 2018, the outstanding balance on the credit facility is $75,000,000; therefore, leaving $75,000,000 available for future borrowings. The maturity date on the credit facility is October 7, 2020. The credit facility is available for general corporate purposes, including working capital and acquisitions.

Our ability to refinance the credit agreement, to meet our long–term contractual obligations and to finance our operating requirements, and growth and development plans will depend upon our future performance, which will be affected by business, economic, financial and other factors, including potential changes in state and federal government payment rates for healthcare, customer demand, success of our marketing efforts, pressures from competitors, and the state of the economy, including the state of financial and credit markets.

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Commitment and Contingencies

Caris HealthCare, L.P. Investigation and Related Litigation

                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 alleged 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. 

                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.  That settlement was finalized on June 25, 2018, in which Caris agreed to pay $8.5 million plus interest for a full release associated with the alleged submission of false claims and alleged retention of overpayments from Medicare for hospice services provided between April 1, 2010, and December 31, 2013. On June 28, 2018, the District Court entered an Order in connection with the parties’ Joint Stipulation of Dismissal, which dismissed the action with prejudice as to the Hinkle and Hinkle’s bankruptcy trustee, with prejudice to the United States with respect to the conduct released by the settlement, and without prejudice to the United States with respect to all remaining claims. The District Court’s Order concludes this litigation.

Nutritional Support Services, L.P., Qui Tam Litigation

On June 19, 2018, a First Amended Complaint was filed naming Nutritional Support Services, L.P. (“NSS”), a wholly-owned subsidiary of the Company, as a defendant in the action captioned U.S. ex rel. McClain v. Nutritional Support Services, L.P., No. 6:17-cv-2608-AMQ (D.S.C.), which was filed in the United States District Court for the District of South Carolina. The action alleges that NSS violated the False Claims Act by reporting a National Drug Code (“NDC”) number that did not correspond to the NDC for dispensed prescriptions. On April 16, 2018, the United States filed a Notice of Election to Decline Intervention with respect to the allegations asserted in this action. NSS intends to vigorously defend itself with respect to this action.

New Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies to the interim condensed consolidated financial statements for the impact of new accounting standards.

Forward–Looking Statements

References throughout this document to the Company include National HealthCare Corporation and its wholly–owned subsidiaries. In accordance with the Securities and Exchange Commissions “Plain English” guidelines, this Quarterly Report on Form 10–Q has been written in the first person. In this document, the words “we”, “our”, “ours” and “us” refer only to National HealthCare Corporation and its wholly–owned subsidiaries and not any other person.

This Quarterly Report on Form 10–Q and other information we provide from time to time, contains certain “forward–looking” statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations or cash flows, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, ability to control our patient care liability costs, ability to respond to changes in government regulations, ability to execute our three–year strategic plan, and similar statements including, without limitations, those containing words such as “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans”, and other similar expressions are forward–looking statements.

Forward–looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward–looking statements as a result of, but not limited to, the following factors:

● national and local economic conditions, including their effect on the availability and cost of labor, utilities and materials;

● the effect of government regulations and changes in regulations governing the healthcare industry, including our compliance with such regulations;

● changes in Medicare and Medicaid payment levels and methodologies and the application of such methodologies by the government and its fiscal intermediaries;

● liabilities and other claims asserted against us, including patient care liabilities, as well as the resolution of current litigation (see Note 15 - Contingencies and Commitments);

31

● the ability of third parties for whom we have guaranteed debt, if any, to refinance certain short-term debt obligations;

● the ability to attract and retain qualified personnel;

● the availability and terms of capital to fund acquisitions and capital improvements;

● the ability to refinance existing debt on favorable terms;

● the competitive environment in which we operate;

● the ability to maintain and increase census levels; and

● demographic changes.

See the notes to the quarterly financial statements, and “Item 1. Business” in our 2017 Annual Report on Form 10–K for a discussion of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. This may be found on our web site at www.nhccare.com. You should carefully consider these risks before making any investment in the Company. These risks and uncertainties are not the only ones facing us. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of the risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our shares of stock could decline, and you may lose all or part of your investment. Given these risks and uncertainties, we can give no assurances that these forward–looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. Currently, our exposure to market risk relates primarily to our fixed–income and equity portfolios. These investment portfolios are exposed primarily to, but not limited to, interest rate risk, credit risk, equity price risk, and concentration risk. We also have exposure to market risk that includes our cash and cash equivalents, notes receivable, revolving credit facility, and long–term debt. The Company's senior management has established comprehensive risk management policies and procedures to manage these market risks.

Interest Rate Risk

The fair values of our fixed–income investments fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in the fair values of those instruments. Additionally, the fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, the liquidity of the instrument and other general market conditions. At September 30, 2018, we have available for sale debt securities in the amount of $168,034,000. The fixed maturity portfolio is comprised of investments with primarily short–term and intermediate–term maturities. The portfolio composition allows flexibility in reacting to fluctuations of interest rates. The fixed maturity portfolio allows our insurance company subsidiaries to achieve an adequate risk–adjusted return while maintaining sufficient liquidity to meet obligations.

As of September 30, 2018, the Company has $75,000,000 of long–term debt that bears interest at variable interest rates. Based on our outstanding long–term debt, a 1% change in interest rates would change our annual interest cost by approximately $750,000.

Our cash and cash equivalents consist of highly liquid investments with a maturity of less than three months when purchased. As a result of the short–term nature of our cash instruments, a hypothetical 1% change in interest rates would have minimal impact on our future earnings and cash flows related to these instruments.

We do not currently use any derivative instruments to hedge our interest rate exposure. We have not used derivative instruments for trading purposes and the use of such instruments in the future would be subject to approvals by the Investment Committee of the Board.

Credit Risk

Credit risk is managed by diversifying the fixed maturity portfolio to avoid concentrations in any single industry group or issuer and by limiting investments in securities with lower credit ratings.

Equity Price and Concentration Risk 

Our marketable equity securities are recorded at their fair market value based on quoted market prices. Thus, there is exposure to equity price risk, which is the potential change in fair value due to a change in quoted market prices. At September 30, 2018, the fair value of our marketable equity securities is approximately $139,502,000. Of the $139.5 million equity securities portfolio, our investment in National Health Investors, Inc. (“NHI”) comprises approximately $123.3 million, or 88.4%, of the total fair value. We manage our exposure to NHI by closely monitoring the financial condition, performance, and outlook of the company. Hypothetically, a 10% change in quoted market prices would result in a related increase or decrease in the fair value of our equity investments of approximately $13.9 million. At September 30, 2018, our equity securities had unrealized gains of $109.3 million. Of the $109.3 million of unrealized gains, $98.5 million is related to our investment in NHI.

32

Item 4. Controls and Procedures.

As of September 30, 2018, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Principal Accounting Officer (“PAO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and PAO, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2018. There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

For a discussion of prior, current and pending litigation of material significance to NHC, please see Note 15 - Contingencies and Commitments of this Form 10–Q. 

Item 1A. Risk Factors.

During the nine months ended September 30, 2018, there were no material changes to the risk factors that were disclosed in Item 1A of National HealthCare Corporation’s Annual Report on Form 10–K for the year ended December 31, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

None

33

Item 6. Exhibits.

(a)     List of exhibits

EXHIBIT INDEX
Exhibit No.	Description
3.1	Certificate of Incorporation of National HealthCare Corporation (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form S-4 (File No. 333-37185) dated October 3, 1997.)
3.2	Certificate of Amendment to the Certificate of Incorporation of National HealthCare Corporation (Incorporated by reference to Exhibit 3.5 to the quarterly report on Form 10-Q filed on August 3, 2017.)
3.3	Certificate of Designation Series B Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form 8-A, dated August 3, 2007.)
3.4	Restated Bylaws as amended February 14, 2013 (Incorporated by reference to Exhibit 3.5 to the quarterly report on Form 10-Q filed on May 8, 2013.)
4.1	Form of Common Stock (Incorporated by reference to Exhibit 4.1 to the quarterly report on Form 10-Q filed on August 3, 2017.)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer
32	Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer and Principal Accounting Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

34

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NATIONAL HEALTHCARE CORPORATION
	(Registrant)
Date: November 8, 2018	/s/ Stephen F. Flatt
	Stephen F. Flatt
	Chief Executive Officer
Date: November 8, 2018	/s/ Brian F. Kidd
	Brian F. Kidd
	Senior Vice President and Controller
	(Principal Accounting Officer)

35

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Stephen F. Flatt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National HealthCare Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2018

 /s/ Stephen F. Flatt  

Stephen F. Flatt

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Brian F. Kidd, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National HealthCare Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2018

 /s/ Brian F. Kidd  

Brian F. Kidd

Senior Vice President and Controller

(Principal Financial Officer)

EX-32

Exhibit 32

Certification of Quarterly Report on Form 10-Q

of National HealthCare Corporation

For the Quarter Ended September 30, 2018

The undersigned hereby certify, pursuant to 18 U.S.C. Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned's best knowledge and belief, the Quarterly Report on Form 10-Q for National HealthCare Corporation ("Issuer") for the period ending September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"):

(a)	fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

This Certification accompanies the Quarterly Report on Form 10-Q of the Issuer for the quarterly period ended September 30, 2018.

This Certification is executed as of November 8, 2018.

/s/Stephen F. Flatt                                        

Stephen F. Flatt

Chief Executive Officer

/s/ Brian F. Kidd                                          

Brian F. Kidd

Principal Accounting Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 07, 2018
Document Information [Line Items]
Entity Registrant Name	NATIONAL HEALTHCARE CORP
Entity Central Index Key	0001047335
Trading Symbol	nhc
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding (in shares)		15,233,254
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Interim Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenues:
Other revenues	$ 11,499,000	$ 11,937,000	$ 34,256,000	$ 34,831,000
Net operating revenues	246,326,000	241,196,000	731,429,000	718,429,000
Costs and expenses:
Salaries, wages and benefits	149,188,000	145,900,000	434,749,000	426,639,000
Other operating	64,507,000	63,250,000	192,268,000	188,522,000
Facility rent	10,190,000	10,106,000	30,691,000	30,273,000
Depreciation and amortization	10,437,000	10,833,000	31,176,000	31,609,000
Interest	1,170,000	1,322,000	3,663,000	3,599,000
Total costs and expenses	235,492,000	231,411,000	692,547,000	680,642,000
Income from operations	10,834,000	9,785,000	38,882,000	37,787,000
Other income:
Non–operating income	8,467,000	6,090,000	11,056,000	16,047,000
Unrealized gains on marketable equity securities	3,486,000		417,000
Income before income taxes	22,787,000	15,875,000	50,355,000	53,834,000
Income tax provision	(1,700,000)	(4,691,000)	(9,792,000)	(19,448,000)
Net income	21,087,000	11,184,000	40,563,000	34,386,000
Net loss attributable to noncontrolling interest	55,000	168,000	249,000	349,000
Net income attributable to National HealthCare Corporation	$ 21,142,000	$ 11,352,000	$ 40,812,000	$ 34,735,000
Earnings per share attributable to National HealthCare Corporation stockholders:
Basic (in dollars per share)	$ 1.39	$ 0.75	$ 2.68	$ 2.29
Diluted (in dollars per share)	$ 1.39	$ 0.75	$ 2.68	$ 2.28
Weighted average common shares outstanding:
Basic (in shares)	15,225,654	15,195,394	15,221,217	15,186,315
Diluted (in shares)	15,242,086	15,220,567	15,230,692	15,217,797
Dividends declared to common stockholders, per share (in dollars per share)	$ 0.50	$ 0.48	$ 1.48	$ 1.41
Net Patient Revenues [Member]
Revenues:
Revenues	$ 234,827,000	$ 229,259,000	$ 697,173,000	$ 683,598,000

XML

Interim Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net income	$ 21,087	$ 11,184	$ 40,563	$ 34,386
Other comprehensive gain (loss):
Unrealized gains (losses) on investments in restricted marketable debt securities	(180)	397	(3,772)	2,629
Unrealized gains (losses) on investments in marketable equity securities		(4,373)		5,751
Reclassification adjustment for realized (gains) losses on sale of securities	7	(17)	(18)	(255)
Income tax benefit (expense) related to items of other comprehensive income	36	1,572	795	(3,074)
Other comprehensive gain (loss), net of tax	(137)	(2,421)	(2,995)	5,051
Net loss attributable to noncontrolling interest	55	168	249	349
Comprehensive income attributable to National HealthCare Corporation	$ 21,005	$ 8,931	$ 37,817	$ 39,786

XML

Interim Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Current Assets:
Cash and cash equivalents	$ 55,599,000	$ 59,118,000
Restricted cash and cash equivalents, current portion	10,209,000	6,397,000
Marketable equity securities	139,502,000	139,085,000
Restricted marketable debt securities, current portion	17,606,000	21,012,000
Accounts receivable, net	87,263,000	86,767,000
Inventories	7,590,000	7,153,000
Prepaid expenses and other assets	3,163,000	2,864,000
Notes receivable, current portion	1,338,000	1,450,000
Federal income tax receivable	2,203,000	5,465,000
Total current assets	324,473,000	329,311,000
Property and Equipment:
Property and equipment, at cost	977,373,000	958,748,000
Accumulated depreciation and amortization	(436,437,000)	(409,429,000)
Net property and equipment	540,936,000	549,319,000
Other Assets:
Restricted cash and cash equivalents, less current portion	1,925,000	1,906,000
Restricted marketable debt securities, less current portion	150,428,000	145,383,000
Deposits and other assets	5,807,000	4,867,000
Goodwill	20,995,000	17,600,000
Notes receivable, less current portion	10,031,000	11,801,000
Investments in limited liability companies	30,073,000	36,339,000
Total other assets	219,259,000	217,896,000
Total assets	1,084,668,000	1,096,526,000
Current Liabilities:
Trade accounts payable	19,611,000	15,978,000
Capital lease obligations, current portion	3,865,000	3,696,000
Accrued payroll	58,487,000	67,102,000
Amounts due to third party payors	17,596,000	17,389,000
Accrued risk reserves, current portion	27,815,000	27,409,000
Other current liabilities	16,561,000	16,194,000
Dividends payable	7,613,000	7,297,000
Total current liabilities	151,548,000	155,065,000
Long–term debt	75,000,000	100,000,000
Capital lease obligations, less current portion	20,132,000	23,052,000
Accrued risk reserves, less current portion	67,972,000	65,866,000
Refundable entrance fees	8,668,000	8,827,000
Obligation to provide future services	2,887,000	2,887,000
Deferred income taxes	18,648,000	18,376,000
Other noncurrent liabilities	14,703,000	15,795,000
Deferred revenue	3,892,000	3,226,000
Total liabilities	363,450,000	393,094,000
Equity:
Common stock, $.01 par value; 45,000,000 shares authorized; 15,225,654 and 15,212,133 shares, respectively, issued and outstanding	152,000	152,000
Capital in excess of par value	217,657,000	215,659,000
Retained earnings	505,906,000	419,423,000
Accumulated other comprehensive income (loss)	(3,692,000)	67,504,000
Total National HealthCare Corporation stockholders’ equity	720,023,000	702,738,000
Noncontrolling interest	1,195,000	694,000
Total equity	721,218,000	703,432,000
Total liabilities and equity	$ 1,084,668,000	$ 1,096,526,000

XML

Interim Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	45,000,000	45,000,000
Common stock, shares issued (in shares)	15,225,654	15,212,133
Common stock, shares outstanding (in shares)	15,225,654	15,212,133

XML

Interim Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash Flows From Operating Activities:
Net income	$ 40,563,000	$ 34,386,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	31,176,000	31,609,000
Equity in (earnings) losses of unconsolidated investments	1,860,000	(5,908,000)
Distributions from unconsolidated investments	3,830,000	7,748,000
Unrealized gains on marketable equity securities	(417,000)
Gains on sale of restricted marketable debt securities	(18,000)	(255,000)
Gain on acquisition of equity method investment	(2,050,000)
Deferred income taxes	1,067,000	881,000
Stock–based compensation	1,538,000	1,263,000
Changes in operating assets and liabilities:
Accounts receivable	613,000	2,273,000
Income tax receivable	3,262,000	(1,248,000)
Inventories	(437,000)	395,000
Prepaid expenses and other assets	(1,336,000)	(942,000)
Trade accounts payable	3,319,000	(3,857,000)
Accrued payroll	(8,615,000)	(10,326,000)
Amounts due to third party payors	207,000	3,630,000
Accrued risk reserves	2,668,000	4,375,000
Other current liabilities	262,000	7,086,000
Other noncurrent liabilities	(1,092,000)	(760,000)
Deferred revenue	666,000	645,000
Net cash provided by operating activities	77,066,000	70,995,000
Cash Flows From Investing Activities:
Additions to property and equipment	(22,708,000)	(24,328,000)
Acquisition of equity method investment, net of cash acquired	(527,000)
Distributions from/(investments in) unconsolidated companies	376,000	(176,000)
Collections of notes receivable	1,180,000	3,970,000
Purchase of restricted marketable securities	(9,950,000)	(24,874,000)
Sale of restricted marketable securities	4,539,000	46,598,000
Net cash (used in) provided by investing activities	(27,090,000)	1,190,000
Cash Flows From Financing Activities:
Principal payments on debt	(25,000,000)
Principal payments under capital lease obligations	(2,751,000)	(2,591,000)
Dividends paid to common stockholders	(22,214,000)	(20,943,000)
Issuance of common shares	1,327,000	1,627,000
Repurchase of common shares	(867,000)
Equity attributable to noncontrolling interest		970,000
Entrance fee refunds	(159,000)	(1,097,000)
Net cash used in financing activities	(49,664,000)	(22,034,000)
Net Increase in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	312,000	50,151,000
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period	67,421,000	31,589,000
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period	67,733,000	81,740,000
Balance Sheet Classifications:
Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	$ 67,421,000	$ 31,589,000

XML

Interim Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Noncontrolling Interest [Member]	Total
Balance (in shares) at Dec. 31, 2016	15,162,938
Balance at Dec. 31, 2016	$ 152	$ 211,457	$ 391,934	$ 66,068		$ 669,611
Net income attributable to National HealthCare Corporation			34,735			34,735
Net loss attributable to noncontrolling interest					(349)	(349)
Equity contributed by noncontrolling interest					970	970
Other comprehensive income (loss)				5,051		5,051
Stock–based compensation		1,263				1,263
Shares sold – options exercised (in shares)	33,917
Shares sold – options exercised		1,627				1,627
Dividends declared to common stockholders			(21,419)			(21,419)
Balance (in shares) at Sep. 30, 2017	15,196,855
Balance at Sep. 30, 2017	$ 152	214,347	405,250	71,119	621	691,489
Balance (in shares) at Dec. 31, 2016	15,162,938
Balance at Dec. 31, 2016	$ 152	211,457	391,934	66,068		$ 669,611
Shares sold – options exercised (in shares)						48,995
Balance (in shares) at Dec. 31, 2017	15,212,133
Balance at Dec. 31, 2017	$ 152	215,659	419,423	67,504	694	$ 703,432
Net income attributable to National HealthCare Corporation			40,812			40,812
Net loss attributable to noncontrolling interest					(249)	(249)
Equity contributed by noncontrolling interest					750	750
Other comprehensive income (loss)				(2,995)		(2,995)
Stock–based compensation		1,538				$ 1,538
Shares sold – options exercised (in shares)	28,027					33,526
Shares sold – options exercised		1,327				$ 1,327
Dividends declared to common stockholders			(22,530)			(22,530)
Reclassification due to new accounting standards at Dec. 31, 2017			68,201	(68,201)
Repurchase of common shares (in shares)	(14,506)
Repurchase of common shares		(867)				(867)
Balance (in shares) at Sep. 30, 2018	15,225,654
Balance at Sep. 30, 2018	$ 152	$ 217,657	$ 505,906	$ (3,692)	$ 1,195	$ 721,218

XML

Interim Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (Parentheticals) - $ / shares	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Common Stock [Member]
Dividends declared to common stockholders, per share (in dollars per share)	$ 1.48	$ 1.41
Dividends declared to common stockholders, per share (in dollars per share)	$ 1.48	$ 1.41

XML

Note 1 - Description of Business

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note

1

– Description of Business

National HealthCare Corporation

(“NHC” or the “Company”) is a leading provider of senior health care services. As of

September 30, 2018,

we operate or manage, through certain affiliates,

76

skilled nursing facilities with a total of

9,604

licensed beds,

24

assisted living facilities,

five

independent living facilities,

one

geriatric psychiatric hospital, and

35

homecare programs. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. We also have a noncontrolling ownership interest in a hospice care business that services NHC owned skilled nursing facilities and others. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing facilities. We operate in

10

states and are located primarily in the southeastern United States.

XML

Note 2 - Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note

2

– Summary of Significant Accounting Policies

The listing below is

not

intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would

not

produce a materially different result. See our audited

December 31, 2017

consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by generally accepted accounting principles. Our audited

December 31, 2017

consolidated financial statements are available at our web site:

www.nhccare.com

.

Basis of Presentation

The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations.

We assume that users of these interim condensed consolidated financial statements have read or have access to the audited

December 31, 2017

consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies,

may

be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is

not

necessarily indicative of the results that

may

be expected for a full year for a variety of reasons.

Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period.

Recently Adopted Accounting Guidance

In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)

No.

2014–09

“Revenue from Contracts with Customers,” also known as the “New Revenue Standard.” This update is the result of a collaborative effort by the FASB and the International Accounting Standards Board to simplify revenue recognition guidance, remove inconsistencies in the application of revenue recognition, and to improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive for those goods or services. The New Revenue Standard is applied through the following

five

-step process:

1.

Identify the contract(s) with a customer.

2.

Identify the performance obligation in the contract.

3.

Determine the transaction price.

4.

Allocate the transaction price to the performance obligations in the contract.

5.

Recognize revenue when (or as) the entity satisfies a performance obligation.

For a public entity, this update is effective for annual reporting periods beginning after

December 15, 2017,

including interim periods within that reporting period by applying either the full retrospective method or the cumulative catch-up transition method.

On

January 1, 2018,

the Company adopted the provisions of ASU

No.

2014

-

09

using the full retrospective method, which requires us to restate each prior reporting period presented. The most significant impact to NHC relates to the recording of revenue for patients that have individual copayment responsibilities and are eligible for both Medicare and Medicaid benefits (also known as dual eligible patients). As such with these patients, net patient revenues will only include the amounts expected to be collected from the patients in accordance with ASU

No.

2014

-

09.

Under the prior accounting guidance, we recorded the price stated in the contract as net patient revenue, and the amounts

not

collected from our patients were recorded as bad debts in other operating expenses. The adoption of ASU

No.

2014

-

09

has

no

impact on the Company’s accounts receivable as it was historically recorded net of allowance for doubtful accounts and contractual adjustments. The following tables present the effect on the interim condensed consolidated statements of operations for the

three

months and

nine

months ended

September 30, 2017

for the accounting change that was retrospectively adopted on

January 1, 2018:

Consolidated Statements of Operations

(

in thousands

)

	Three Months Ended September 30, 2017
	As Previously Reported		Effect of Accounting Change			As Adjusted
Net patient revenues	$	230,048	$	(789	)	$	229,259
Net operating revenues		241,985		(789	)		241,196
Other operating expenses		64,039		(789	)		63,250
Total costs and expenses		232,200		(789	)		231,411
Net income	$	11,184	$	–		$	11,184

	Nine Months Ended September 30, 2017
	As Previously Reported		Effect of Accounting Change			As Adjusted
Net patient revenues	$	685,854	$	(2,256	)	$	683,598
Net operating revenues		720,685		(2,256	)		718,429
Other operating expenses		190,778		(2,256	)		188,522
Total costs and expenses		682,898		(2,256	)		680,642
Net income	$	34,386	$	–		$	34,386

In

January 2016,

the FASB issued ASU

No.

2016–01,

 “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities(Topic

825

).” ASU

No.

2016–01

revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU

No.

2016–01

requires the change in fair value of many equity investments to be recognized in net income.  On

January 1, 2018,

the Company adopted the provisions of ASU

No.

2016

-

01

using the modified retrospective method as required by the standard. The adoption of ASU

No.

 

2016

-

01

resulted in a

$68,073,000

reclassification of net unrealized gains from accumulated other comprehensive income (“AOCI”) to the opening balance of retained earnings. For the

three

months and

nine

months ended

September 30, 2018,

the Company recognized a gain of

$3,486,000

and

$417,000,

respectively, in our interim condensed consolidated statement of operations related to the change in fair value of our marketable equity securities.  The adoption of ASU

No.

 

2016

-

01

increases the volatility of other income due to the market fluctuation of our marketable equity securities.

In

August 2016,

the FASB issued ASU

No.

 

2016

-

15,

“Clarification on Classification of Certain Cash Receipts and Cash Payments on the Statements of Cash Flows.” ASU

No.

 

2016

-

15

was issued to create consistency in the classification of

eight

specific cash flow items and provides an accounting policy election for classifying distributions received from equity method investments. Such equity method investment distributions are now classified using a

1

) cumulative earnings approach, or

2

) nature of distribution approach. On

January 1, 2018,

the Company adopted the provisions of ASU

No.

2016

-

15

and this standard did

not

have a material impact on our consolidated financial statements.

In

May 2017,

the FASB issued ASU

No.

 

2017

-

09,

“Compensation – Stock Compensation (Topic

718

): Scope of Modification Accounting.” ASU

No.

 

2017

-

09

amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification ("ASC") 

718.

On

January 1, 2018,

the Company adopted the provisions of ASU

No.

2017

-

09

and this standard did

not

have a material impact on our consolidated financial statements.

In

February 2018,

the FASB issued ASU

No.

 

2018

-

02,

“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU

No.

 

2018

-

02

permits a company to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act of

2017

to retained earnings. The FASB refers to these amounts as “stranded tax effects.” On

January 1, 2018,

the Company early adopted the provisions of ASU

No.

2018

-

02.

The adoption of this standard resulted in an adjustment of accumulated other comprehensive income, with a corresponding adjustment to the opening balance of retained earnings in the amount of

$128,000,

related to the stranded tax effects of the unrealized losses in our restricted marketable debt securities.

Recent Accounting Guidance

Not

Yet Adopted      

In

February 2016,

the FASB issued ASU

No.

 

2016

-

02,

"Leases (Topic

842

)." The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. We anticipate this standard will have a material impact on our consolidated financial statements and will result in an increase to total assets and total liabilities. Additionally, we are currently evaluating the impact this standard will have on our policies and procedures and internal control framework.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

"Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments."  ASU

No.

2016

-

13

replaces the current incurred loss impairment methodology for credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  This ASU is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those annual periods, with early adoption permitted for fiscal years beginning after

December 15, 2018. 

We are currently evaluation the impact this standard will have on our policies and procedures and internal control framework.

Segment Reporting

In accordance with the provisions of ASC

280,

“Segment Reporting”, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has

two

reportable operating segments: (

1

) inpatient services, which includes the operation of skilled nursing facilities and assisted and independent living facilities, and (

2

) homecare services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note

6

for further disclosure of the Company’s operating segments.

Other Operating Expenses

Other operating expenses include the costs of care and services that we provide to the residents of our facilities and the costs of maintaining our facilities. Our primary patient care costs include drugs, medical supplies, purchased professional services, food, and professional liability insurance and licensing fees. The primary facility costs include utilities and property insurance.

General and Administrative Costs

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were

$7,805,000

 and

$21,056,000

for the

three

months and

nine

months ended

September 30, 2018,

respectively. General and administrative costs were

$7,180,000

and

$22,442,000

for the

three

months and

nine

months ended

September 30, 2017,

respectively.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided by the straight-line method over the expected useful lives of the assets estimated as follows: buildings and improvements,

20

-

40

years and equipment and furniture,

3

-

15

years. Leasehold improvements are amortized over periods that do

not

exceed the non-cancelable respective lease terms using the straight-line method.

Capital leases are recorded at the lower of fair market value or the present value of future minimum lease payments. Capital leases are amortized in accordance with the provision codified within Accounting Standards Codification (“ASC”) Subtopic

840

-

30,

Leases – Capital Leases

. Amortization of capital lease assets is included in depreciation and amortization expense.

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. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.

Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on alleged negligence by skilled nursing facilities and their employees in providing care to residents. As of

September 30, 2018,

we and/or our managed centers are defendants in

65

such claims. It remains possible that those pending matters plus potential unasserted claims could exceed our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.

We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverages include both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.

Continuing Care Contracts and Refundable Entrance Fee

We have

one

Continuing Care Retirement Community (”CCRC”) within our operations. Residents at this retirement center

may

enter into continuing care contracts with us. The contracts provide that

10%

of the resident entry fee becomes non-refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lessor of the price at which the apartment is re-assigned or

90%

of the original entry fee, plus

40%

of any appreciation if the apartment exceeds the original resident’s entry fee.

Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarially determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are

not

included as part of the transaction price and are classified as non-current liabilities in the Company's consolidated balance sheets. The balances of refundable entrance fees as of

September 30, 2018

and

December 31, 2017

were

$8,668,000

and

$8,827,000,

respectively.

Obligation to Provide Future Services

We annually estimate the present value of the cost of future services and the use of facilities to be provided to the current CCRC residents and compare that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income. As of

September 30, 2018,

and

December 31, 2017,

we have recorded a future service obligation in the amount of

$2,887,000

.

Other Noncurrent Liabilities

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions.

Deferred Revenue

Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”), the non-refundable portion (

10%

) of CCRC entrance fees being amortized over the remaining life expectancies of the residents, and premiums received within our workers’ compensation and professional liability companies that are

not

yet earned.

Noncontrolling Interest

The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

Variable Interest Entities

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) are the sole entity that has the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and

may

or

may

not

be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in limited liability companies” in the consolidated balance sheets.

Prior Period Classifications

Certain amounts in prior periods have been reclassified to conform with current period presentation.

XML

Note 3 - Net Patient Revenues

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

Note

3

– Net Patient Revenues

Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, and home health care services. Net patient revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient services. These amounts are due from patients, governmental programs, and other

third

-party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations.

The Company disaggregates revenue from contracts with customers by service type and by payor.

Revenue by Service Type

The Company’s net patient services can generally be classified into the following

two

categories: (

1

) inpatient services, which includes the operation of skilled nursing facilities and assisted and independent living facilities, and (

2

) homecare services.

	Three Months Ended September 30				Nine Months Ended September 30
(in thousands)	2018		2017		2018		2017
Net patient revenues:
Inpatient services	$	220,099	$	213,814	$	652,066	$	636,311
Homecare		14,728		15,445		45,107		47,287
Total net patient revenue	$	234,827	$	229,259	$	697,173	$	683,598

The Company recognizes revenue as its performance obligations are completed. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. For inpatient services, revenue is recognized on a daily basis as each day represents a separate contract and performance obligation. For homecare, revenue is recognized when services are provided based on the number of days of service rendered in the episode or on a per-visit basis. Typically, patients and

third

-party payors are billed monthly after services are performed or the patient is discharged and payments are due based on contract terms.

As our performance obligations relate to contracts with a duration of

one

year or less, the Company has elected to apply the optional exemption provided in FASB ASC

606

-

10

-

50

-

14

(a) and, therefore, is

not

required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients are typically under

no

obligation to remain admitted in our facilities or under our care.

As the period between the time of service and time of payment is typically

one

year or less, the Company elected as a practical expedient under ASC

606

-

10

-

32

-

18

to

not

adjust for the effects of a significant financing component.

Revenue by Payor

Certain groups of patients receive funds to pay the cost of their care from a common source. The following table sets forth sources of net patient revenues for the periods indicated:

	Three Months Ended September 30						Nine Months Ended September 30
Source	2018			2017			2018			2017
Medicare		34	%		34	%		35	%		35	%
Managed Care		12	%		13	%		12	%		13	%
Medicaid		27	%		27	%		26	%		26	%
Private Pay and Other		27	%		26	%		27	%		26	%
Total		100	%		100	%		100	%		100	%

The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to

third

party payors.  Contractual adjustments are based on contractual agreements and historical experience.  The Company considers the patient's ability and intent to pay the amount of consideration upon admission.  Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. The provision for doubtful accounts was

$1,098,000

and

$3,121,000

for the

three

months and

nine

months ended

September 30, 2018,

respectively. The provision for doubtful accounts was

$982,000

and

$3,215,000

for the

three

months and

nine

months ended

September 30, 2017,

respectively.

Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least

three

consecutive days. For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services.

For homecare services, Medicare pays based on the acuity level of the patient and based on episodes of care. An episode of care is defined as a length of care up to

60

days with multiple continuous episodes allowed. The services covered by the episode payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit. We are allowed to make a request for anticipated payment at the start of care equal to

60%

of the expected payment for the initial episode. The remaining balance due is paid following the submission of the final claim at the end of the episode. Deferred revenue is recorded for payments received for which the related services have

not

yet been provided

Medicaid is operated by individual states with the financial participation of the federal government. The states in which we operate currently use prospective cost–based reimbursement systems. Under cost–based reimbursement systems, the skilled nursing facility is reimbursed for the reasonable direct and indirect allowable costs it incurred in a base year in providing routine resident care services as defined by the program.

Private pay, managed care, and other payment sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration. Private paying patients, private insurance carriers and the Veterans Administration generally pay based on the healthcare facilities charges or specifically negotiated contracts. For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills for room and board charges, with the remittance being due on receipt of the statement and generally by the

10th

day of the month the services are performed.

Certain managed care payors for homecare services pay on a per-visit basis. This non-episodic based revenue is recorded on an accrual basis based upon the date of services at amounts equal to its established or estimated per-visit rates.     

Third Party Payors

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties, and exclusion from the Medicare and Medicaid programs. We believe that we are in compliance with all applicable laws and regulations.

Medicare and Medicaid program revenues, as well as certain Managed Care program revenues, are subject to audit and retroactive adjustment by government representatives or their agents. The Medicare PPS methodology requires that patients be assigned to Resource Utilization Groups ("RUGs") based on the acuity level of the patient to determine the amount paid to us for patient services. The assignment of patients to the various RUG categories is subject to post–payment review by Medicare intermediaries or their agents. Settlements with

third

-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. 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, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will

not

occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are

no

longer subject to such audits, reviews, and investigations. We believe currently that any differences between the net revenues recorded and final determination will

not

materially affect the consolidated financial statements. We have made provisions of approximately

$17,596,000

and

$17,389,000

as of

September 30, 2018

and

December 31, 2017,

respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

XML

Note 4 - Other Revenues

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Other Revenues [Text Block]

Note

4

– Other Revenues

Revenues from rental income include health care real estate properties owned by us and leased to

third

party operators. Revenues from management and accounting services fees are generated by providing management and accounting services to

third

-party post-acute healthcare facilities. Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly–owned insurance subsidiaries have written for

third

-party post-acute health care facilities to which we provide management or accounting services. "Other" revenues include miscellaneous health care related earnings.

Other revenues include the following:

	Three Months Ended September 30				Nine Months Ended September 30
(in thousands)	2018		2017		2018		2017
Rental income	$	5,548	$	5,500	$	16,633	$	16,501
Management and accounting services fees		3,818		4,130		11,265		11,741
Insurance services		1,716		2,077		5,362		5,721
Other		417		230		996		868
Total other revenues	$	11,499	$	11,937	$	34,256	$	34,831

Management Fees from National

We manage

five

skilled nursing facilities owned by National. For the

three

months and

nine

months ended

September 30, 2018,

we recognized management fees and interest on management fees of

$1,087,000

and

$3,140,000

from these centers, respectively. For the

three

months and

nine

months ended

September 30, 2017,

we recognized management fees and interest on management fees of

$977,000

and

$2,902,000

for these centers.

Insurance Services

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the

three

months and

nine

months ended

September 30, 2018

were

$1,043,000

and

$3,342,000,

respectively. For the

three

months and

nine

months ended

September 30, 2017,

the workers’ compensation premium revenues reflected in the interim condensed consolidated statements of operations were

$1,399,000

and

$4,087,000.

Associated losses and expenses are reflected in the interim condensed consolidated statements of operations as "Salaries, wages and benefits."

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the

three

months and

nine

months ended

September 30, 2018

were

$673,000

and

$2,020,000,

respectively. For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the

three

months and

nine

months ended

September 30, 2017

were

$678,000

and

$1,634,000,

respectively. Associated losses and expenses including those for self–insurance are included in the interim condensed consolidated statements of operations as "Other operating costs and expenses".

XML

Note 5 - Non-operating Income

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Other Nonoperating Income and Expense [Text Block]

Note

5

– Non–Operating Income

Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on marketable securities, interest income, and gain on acquisition of additional interest of a geriatric psychiatry partnership.

Our most significant equity method investment is a

75.1%

non–controlling ownership interest in Caris HealthCare L.P. (“Caris”), a business that specializes in hospice care services. For the

nine

months ended

September 30, 2018,

Caris recorded expenses of

$8,364,000

for the settlement of their Qui Tam legal matter, all of which were incurred during the

first

two

quarters of the year. Please see Note

15

–

Contingencies and Commitments

for further detail describing the Caris’ legal investigation and settlement.

	Three Months Ended September 30				Nine Months Ended September 30
(in thousands)	2018		2017		2018			2017
Equity in earnings/(losses) of unconsolidated investments	$	2,724	$	2,528	$	(1,860	)	$	5,908
Dividends and net realized gains on sales of securities		1,777		1,696		5,374			5,319
Interest income		1,916		1,866		5,492			4,820
Gain on acquisition of equity method investment		2,050		–		2,050			–
Total non-operating income	$	8,467	$	6,090	$	11,056		$	16,047

Gain on acquisition of equity method investment

On

July 20, 2018,

the Company expanded its operations through an acquisition of additional ownership resulting in a controlling financial interest of a

14

-bed geriatric psychiatric hospital in Osage Beach, Missouri.  We previously held a noncontrolling interest and accounted for the hospital as an equity method investment.  The operating results of the business have been included in the accompanying interim condensed consolidated financial statements since the controlling interest acquisition date.

Upon acquiring a controlling financial interest in the investee, the Company fair valued its previously held equity interest as of the acquisition date.  This remeasurement of our equity interest at fair value resulted in a gain of

$2,050,000

during the

third

quarter of

2018.

  The gain was recorded in "Non-operating income" in the interim condensed consolidated statement of operations.  Additionally, the excess of the fair value over the amounts assigned to the assets and liabilities of the investee resulted in goodwill in the amount of

$3,395,000.

 

XML

Note 6 - Business Segments

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

6

– Business Segments

The Company has

two

reportable operating segments: (

1

) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our geriatric psychiatric hospital; (

2

) homecare services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources.

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note

2

 -

Summary of Significant Accounting Policies.

The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does

not

review assets by segment in his resource allocation and therefore, assets by segment are

not

disclosed below.

The following table sets forth the Company’s unaudited interim condensed consolidated statements of operations by business segment

(in thousands

):

	Three Months Ended September 30, 2018
	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	220,099	$	14,728	$	–		$	234,827
Other revenues		136		–		11,363			11,499
Net operating revenues		220,235		14,728		11,363			246,326
Costs and expenses:
Salaries, wages and benefits		131,418		8,367		9,403			149,188
Other operating		57,371		4,797		2,339			64,507
Rent		8,255		488		1,447			10,190
Depreciation and amortization		9,570		55		812			10,437
Interest		369		–		801			1,170
Total costs and expenses		206,983		13,707		14,802			235,492
Income (loss) from operations		13,252		1,021		(3,439	)		10,834
Non-operating income		–		–		8,467			8,467
Unrealized gains on marketable equity securities		–		–		3,486			3,486
Income before income taxes	$	13,252	$	1,021	$	8,514		$	22,787

	Three Months Ended September 30, 2017
(As adjusted)	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	213,814	$	15,445	$	–		$	229,259
Other revenues		181		–		11,756			11,937
Net operating revenues		213,995		15,445		11,756			241,196
Costs and expenses:
Salaries, wages and benefits		128,403		8,318		9,179			145,900
Other operating		56,062		5,291		1,897			63,250
Rent		8,128		502		1,476			10,106
Depreciation and amortization		9,756		41		1,036			10,833
Interest		423		–		899			1,322
Total costs and expenses		202,772		14,152		14,487			231,411
Income (loss) from operations		11,223		1,293		(2,731	)		9,785
Non-operating income		–		–		6,090			6,090
Income before income taxes	$	11,223	$	1,293	$	3,359		$	15,875

	Nine Months Ended September 30, 2018
	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	652,066	$	45,107	$	–		$	697,173
Other revenues		588		–		33,668			34,256
Net operating revenues		652,654		45,107		33,668			731,429
Costs and expenses:
Salaries, wages and benefits		382,913		25,009		26,827			434,749
Other operating		171,275		14,816		6,177			192,268
Rent		24,780		1,460		4,451			30,691
Depreciation and amortization		28,602		137		2,437			31,176
Interest		1,149		-		2,514			3,663
Total costs and expenses		608,719		41,422		42,406			692,547
Income (loss) from operations		43,935		3,685		(8,738	)		38,882
Non-operating income		–		–		11,056			11,056
Unrealized gains on marketable equity securities		–		–		417			417
Income before income taxes	$	43,935	$	3,685	$	2,735		$	50,355

	Nine Months Ended September 30, 2017
(As adjusted)	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	636,311	$	47,287	$	–		$	683,598
Other revenues		631		–		34,200			34,831
Net operating revenues		636,942		47,287		34,200			718,429
Costs and expenses:
Salaries, wages and benefits		373,641		24,760		28,238			426,639
Other operating		167,454		15,484		5,584			188,522
Rent		24,552		1,490		4,231			30,273
Depreciation and amortization		28,362		120		3,127			31,609
Interest		1,309		–		2,290			3,599
Total costs and expenses		595,318		41,854		43,470			680,642
Income (loss) from operations		41,624		5,433		(9,270	)		37,787
Non-operating income		–		–		16,047			16,047
Income before income taxes	$	41,624	$	5,433	$	6,777		$	53,834

XML

Note 7 - Long-term Leases

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Leases of Lessee Disclosure [Text Block]

Note

7

– Long-Term Leases

Capital Leases

Fixed assets recorded under the capital leases, which are included in property and equipment in the interim condensed consolidated balance sheets, are as follows:

	September 30, 2018			December 31, 2017
	(in thousands)
Buildings and personal property	$	39,032		$	39,032
Accumulated amortization		(17,989	)		(15,045	)
	$	21,043		$	23,987

Operating Leases

The Company leases from National Health Investors, Inc. (“NHI”) the real property of

35

skilled nursing facilities,

seven

assisted living facilities and

three

independent living facilities under

two

separate lease agreements. Base rent expense under both lease agreements totals

$34,200,000

annually with rent thereafter escalating by

4%

of the increase in facility revenue over the base year. Total facility rent expense to NHI was

$9,478,000

and

$9,314,000

for the

three

months ended

September 30, 2018

and

2017,

respectively. Total facility rent expense to NHI was

$28,434,000

and

$27,942,000

for the

nine

months ended

September 30, 2018

and

2017,

respectively.

Minimum Lease Payments

The approximate future minimum lease payments required under all leases that have remaining non-cancelable lease terms at

September 30, 2018

are as follows:

	Operating Leases		Capital Leases
	(in thousands)
2019	$	34,200	$	5,200
2020		34,200		5,200
2021		34,200		5,200
2022		34,200		5,200
2023		34,200		5,200
Thereafter		116,900		2,167
Total minimum lease payments	$	287,900	$	28,167
Less: Amounts representing interest				(4,170	)
Present value of minimum lease payments				23,997
Less: Current portion				(3,865	)
Long-term capital lease obligations			$	20,132

XML

Note 8 - Earnings Per Share

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

Note

8

– Earnings per Share

Basic net income per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income per share reflects the potential dilution that would have occurred if securities to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.

The following table summarizes the earnings and the weighted average number of common shares used in the calculation of basic and diluted earnings per share

(in thousands, except for share and per share amounts)

:

	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Basic:
Weighted average common shares outstanding		15,225,654		15,195,394		15,221,217		15,186,315
Net income attributable to National HealthCare Corporation	$	21,142	$	11,352	$	40,812	$	34,735
Earnings per common share, basic	$	1.39	$	0.75	$	2.68	$	2.29
Diluted:
Weighted average common shares outstanding		15,225,654		15,195,394		15,221,217		15,186,315
Dilutive effect of stock options		16,432		25,173		9,475		31,482
Weighted average common shares outstanding		15,242,086		15,220,567		15,230,692		15,217,797
Net income attributable to National HealthCare Corporation	$	21,142	$	11,352	$	40,812	$	34,735
Earnings per common share, diluted	$	1.39	$	0.75	$	2.68	$	2.28

In the above table, options to purchase

1,048,275

and

1,122,585

shares of our common stock have been excluded for the quarter ended and

nine

-months ended

September 30, 2018

and

2017,

respectively, due to their anti–dilutive impact. 

XML

Note 9 - Investments in Marketable Securities

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note

9

– Investments in Marketable Securities

Our investments in marketable equity securities are carried at fair value with the changes in unrealized gains and losses recognized in our results of operations at each measurement date. Our investments in marketable debt securities are classified as available for sale securities and carried at fair value with the unrealized gains and losses recognized through accumulated other comprehensive income at each measurement date. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note

10

- 

Fair Value Measurements

 for a description of the Company's methodology for determining the fair value of marketable securities.

Marketable securities and restricted marketable securities consist of the following

(in thousands)

:

	September 30, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investments available for sale:
Marketable equity securities	$	30,176	$	139,502	$	30,176	$	139,085
Restricted investments available for sale:
Corporate debt securities		67,905		66,190		65,107		65,461
Commercial mortgage–backed securities		57,626		56,293		54,030		53,544
U.S. Treasury securities		23,497		22,540		21,685		21,172
State and municipal securities		23,679		23,011		26,455		26,218
	$	202,883	$	307,536	$	197,453	$	305,480

Included in the marketable equity securities are the following

(in thousands, except share amounts):

	September 30, 2018						December 31, 2017
	Shares		Cost		Fair Value		Shares		Cost		Fair Value
NHI Common Stock		1,630,642	$	24,734	$	123,260		1,630,642	$	24,734	$	122,918

The amortized cost and estimated fair value of the marketable debt securities classified as available for sale, by contractual maturity, are as follows

(in thousands)

:

	September 30, 2018				December 31, 2017
	Cost		Fair Value		Cost		Fair Value
Maturities:
Within 1 year	$	19,273	$	19,220	$	18,492	$	18,499
1 to 5 years		88,952		87,276		70,331		70,157
6 to 10 years		63,282		60,340		77,657		76,943
Over 10 years		1,200		1,198		797		796
	$	172,707	$	168,034	$	167,277	$	166,395

Gross unrealized gains related to marketable equity securities are

$109,331,000

and

$108,933,000

as of

September 30, 2018

and

December 31, 2017,

respectively. Gross unrealized losses related to marketable equity securities are

$5,000

and

$24,000

as of

September 30, 2018

and

December 31, 2017,

respectively. For the

three

months and

nine

months ended

September 30, 2018,

the Company recognized a net unrealized gain of

$3,486,000

and

$417,000,

respectively, for the change in market value of the marketable equity securities in the interim condensed consolidated statements of operations.

Gross unrealized gains related to available for sale marketable debt securities are

$73,000

and

$823,000

as of

September 30, 2018

and

December 31, 2017,

respectively. Gross unrealized losses related to available for sale marketable debt securities are

$4,746,000

and

$1,705,000

as of

September 30, 2018

and

December 31, 2017,

respectively.

For the marketable securities in gross unrealized loss positions, (a) it is more likely than

not

that the Company will

not

be required to sell the investment securities before recovery of the unrealized losses, and (b) the Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized

no

other-than-temporary impairment during the

nine

months ended

September 30, 2018

or for the year ended

December 31, 2017.

Proceeds from the sale of available for sale marketable debt securities during the

nine

months ended

September 30, 2018

and

2017

were

$4,539,000

and

$46,598,000,

respectively. Investment gains of

$18,000

and

$255,000

were realized on these sales during the

nine

months ended

September 30, 2018

and

2017,

respectively.

No

sales were reported for the marketable equity securities for the

nine

months ended

September 30, 2018

and

2017,

respectively.

XML

Note 10 - Fair Value Measurements

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

10

– Fair Value Measurements

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the

three

levels of inputs that

may

be used to measure fair value:

Level

1

– The valuation is based on quoted prices in active markets for identical instruments.

Level

2

– The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are

not

active, and model–based valuation techniques for which all significant assumptions are observable in the market.

Level

3

– The valuation is based on unobservable inputs that are supported by minimal or

no

market activity and that are significant to the fair value of the instrument. Level

3

valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following table summarizes fair value measurements by level at

September 30, 2018

and

December 31, 2017

for assets and liabilities measured at fair value on a recurring basis

(in thousands)

:

	Fair Value Measurements Using
September 30, 2018	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	55,599	$	55,599	$	–	$	–
Restricted cash and cash equivalents		12,134		12,134		–		–
Marketable equity securities		139,502		139,502		–		–
Corporate debt securities		66,190		43,901		22,289		–
Mortgage–backed securities		56,293		–		56,293		–
U.S. Treasury securities		22,540		22,540		–		–
State and municipal securities		23,011		–		23,011		–
Total financial assets	$	375,269	$	273,676	$	101,593	$	–

	Fair Value Measurements Using
December 31, 2017	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	59,118	$	59,118	$	–	$	–
Restricted cash and cash equivalents		8,303		8,303		–		–
Marketable equity securities		139,085		139,085		–		–
Corporate debt securities		65,461		43,073		22,388		–
Mortgage-backed securities		53,544		–		53,544		–
U.S. Treasury securities		21,172		21,172		–		–
State and municipal securities		26,218		–		26,218		–
Total financial assets	$	372,901	$	270,751	$	102,150	$	–

XML

Note 11 - Long-term Debt

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

11

– Long–Term Debt

Long–term debt consists of the following:

	Weighted Average Interest Rate		Maturities		September 30, 2018		December 31, 2017
	Variable				(dollars in thousands)
Credit Facility, interest payable monthly		3.6%		2020	$	75,000	$	90,000
Unsecured term note payable to National, interest payable quarterly, principal payable at maturity		4.5%		2028		–		10,000
						75,000		100,000
Less current portion						–		–
					$	75,000	$	100,000

$150,000,000

Credit Facility

During the

second

quarter of

2018,

the Company lowered the available borrowing capacity of the credit facility from

$175

million to

$150

million.  The credit facility has a

five

-year maturity date (

October 2020).

Loans bear interest at either (i) LIBOR plus

1.40%

or (ii) the base rate plus

0.40%.

XML

Note 12 - Stock Repurchase Program

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Treasury Stock [Text Block]

Note

12

- Stock Repurchase Program

In

August 2018,

the Board of Directors authorized a common stock purchase program. The program will allow for repurchases of up to

$25

million of its common stock.

No

repurchases have been made under this plan. Under the previous plan which expired on

August 31, 2018,

the Company repurchased

14,506

shares of its common stock for a total cost of

$867,000.

The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

XML

Note 13 - Stock-based Compensation

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note

13

– Stock–Based Compensation

NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled

$361,000

and

$430,000

for the

three

months ended

September 30, 2018

and

2017,

respectively. Stock-based compensation totaled

$1,538,000

and

$1,263,000

for the

nine

months ended

September 30, 2018

and

2017,

respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

At

September 30, 2018,

the Company had

$5,728,000

of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate

three

-year period.

Stock Options

The following table summarizes the significant assumptions used to value the options granted for the

nine

months ended

September 30, 2018

and for the year ended

December 31, 2017.

	September 30, 2018		December 31, 2017
Risk–free interest rate		2.5%		2.1%
Expected volatility		16.1%		16.6%
Expected life, in years		3.0		4.8
Expected dividend yield		3.3%		3.1%

The following table summarizes our outstanding stock options for the

nine

months ended

September 30, 2018

and for the year ended

December 31, 2017.

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2017		177,959		$	55.48	$	–
Options granted		1,125,443			72.96		–
Options exercised		(48,995	)		51.25		–
Options cancelled		(15,000	)		72.94		–
Options outstanding at December 31, 2017		1,239,407			71.19		–
Options granted		110,821			61.40		–
Options exercised		(33,526	)		51.25		–
Options cancelled		(50,000	)		72.94		–
Options outstanding at September 30, 2018		1,266,702		$	70.79	$	5,800,000
Options vested at September 30, 2018		210,881		$	63.35	$	2,535,000

Options Outstanding September 30, 2018		Exercise Prices			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
	218,427	$52.93	-	$62.78	$	60.48		2.7
	1,048,275		$72.94			72.94		3.4
	1,266,702				$	70.79		3.3

XML

Note 14 - Income Taxes

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

14

– Income Taxes

The income tax provision for the

three

months ended

September 30, 2018

is

$1,700,000

(an effective income tax rate of

7.5%

). The income tax provision for the

three

months ended

September 30, 2017

was

$4,691,000

(an effective income tax rate of

29.5%

). The income tax provision and effective tax rate for the

three

months ended

September 30, 2018

was favorably impacted by the following: (

1

) a tax benefit of

$547,000

related to the gain on acquisition of equity method investment; (

2

) a tax benefit of

$2,222,000

related to statute of limitation expirations; and (

3

) a tax benefit of

$1,434,000

related to a provision to return adjustment on the Company’s

2017

federal and state income tax returns, resulting in a net decrease in the provision.

The income tax provision for the

nine

months ended

September 30, 2018

is

$9,792,000

(an effective income tax rate of

19.5%

). The income tax provision and effective tax rate for the

nine

months ended

September 30, 2018

were unfavorably impacted by nondeductible expenses of

$945,000

(primarily the non-deductible portion of the settlement of the Caris HealthCare, L.P. Qui Tam legal matter) or

1.9%

of income before taxes for the

nine

months. The income tax provision for the

nine

months ended

September 30, 2018

was favorably impacted by the following: (

1

) a tax benefit of

$547,000

related to the gain on acquisition of equity method investment; (

2

) a tax benefit of

$2,222,000

related to statute of limitation expirations; and (

3

) a tax benefit of

$1,434,000

related to a provision to return adjustment on the Company’s

2017

federal and state income tax returns. The income tax provision for the

nine

months ended

September 30, 2017

was

$19,448,000

(an effective income tax rate of

36.1%

). The income tax provision and effective tax rate for the

nine

months ended

September 30, 2017

were favorably impacted by statute of limitations expirations resulting in a benefit to the provision of

$1,753,000

or

3.3%

of income before taxes in

2017.

On

December 22, 2017,

the Tax Cuts and Jobs Act of

2017

(

"2017

Tax Act") was signed into law making significant changes to the Internal Revenue Code.  The SEC issued Staff Accounting Bulletin

No.

118

("SAB

118"

), which provides guidance on accounting for the tax effects of the

2017

Tax Act.  As of

December 31, 2017,

we made a reasonable estimate that the revaluation of our net deferred tax liability using the new federal corporate tax rates resulted in a provisional net tax benefit of

$8,488,000,

which reduced our net deferred tax liability balance.  This amount continues to be a provisional adjustment as of

September 30, 2018. 

We will recognize any changes to provisional amounts as we continue to analyze the existing statute or as additional guidance becomes available.  We expect to complete our analysis of the provisional amounts by the end of

2018.

  

Interest and penalties expense related to U.S. federal and state income tax returns are included within income tax expense.

The Company is

no

longer subject to U.S. federal and state examinations by tax authorities for years before

2015

(with certain state exceptions).

XML

Note 15 - Contingencies and Commitments

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

15

– 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

$95,787,000

and

$93,275,000

at

September 30, 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

September 30, 2018,

we and/or our managed centers are currently defendants in

65

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.

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

September 30, 2018,

National did

not

have an outstanding balance on the line of credit.

Caris HealthCare, L.P. Investigation and Related Litigation

                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 alleged 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. 

                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.  That settlement was finalized on

June 25, 2018,

in which Caris agreed to pay

$8.5

million plus interest for a full release associated with the alleged submission of false claims and alleged retention of overpayments from Medicare for hospice services provided between

April 1, 2010,

and

December 31, 2013.

On

June 28, 2018,

the District Court entered an Order in connection with the parties’ Joint Stipulation of Dismissal, which dismissed the action with prejudice as to the Hinkle and Hinkle’s bankruptcy trustee, with prejudice to the United States with respect to the conduct released by the settlement, and without prejudice to the United States with respect to all remaining claims. The District Court’s Order concludes this litigation.

Nutritional Support Services, L.P., Qui Tam Litigation

On

June 19, 2018,

a First Amended Complaint was filed naming Nutritional Support Services, L.P. (“NSS”), a wholly-owned subsidiary of the Company, as a defendant in the action captioned

U.S. ex rel. McClain v. Nutritional Support Services, L.P.,

No.

6:17

-cv-

2608

-AMQ (D.S.C.), which was filed in the United States District Court for the District of South Carolina. The action alleges that NSS violated the False Claims Act by reporting a National Drug Code (“NDC”) number that did

not

correspond to the NDC for dispensed prescriptions. On

April 16, 2018,

the United States filed a Notice of Election to Decline Intervention with respect to the allegations asserted in this action. NSS intends to vigorously defend itself with respect to this action.

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.

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations.

We assume that users of these interim condensed consolidated financial statements have read or have access to the audited

December 31, 2017

consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies,

may

be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is

not

necessarily indicative of the results that

may

be expected for a full year for a variety of reasons.

Use of Estimates, Policy [Policy Text Block]

Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Guidance

In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)

No.

2014–09

“Revenue from Contracts with Customers,” also known as the “New Revenue Standard.” This update is the result of a collaborative effort by the FASB and the International Accounting Standards Board to simplify revenue recognition guidance, remove inconsistencies in the application of revenue recognition, and to improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive for those goods or services. The New Revenue Standard is applied through the following

five

-step process:

1.

Identify the contract(s) with a customer.

2.

Identify the performance obligation in the contract.

3.

Determine the transaction price.

4.

Allocate the transaction price to the performance obligations in the contract.

5.

Recognize revenue when (or as) the entity satisfies a performance obligation.

For a public entity, this update is effective for annual reporting periods beginning after

December 15, 2017,

including interim periods within that reporting period by applying either the full retrospective method or the cumulative catch-up transition method.

On

January 1, 2018,

the Company adopted the provisions of ASU

No.

2014

-

09

using the full retrospective method, which requires us to restate each prior reporting period presented. The most significant impact to NHC relates to the recording of revenue for patients that have individual copayment responsibilities and are eligible for both Medicare and Medicaid benefits (also known as dual eligible patients). As such with these patients, net patient revenues will only include the amounts expected to be collected from the patients in accordance with ASU

No.

2014

-

09.

Under the prior accounting guidance, we recorded the price stated in the contract as net patient revenue, and the amounts

not

collected from our patients were recorded as bad debts in other operating expenses. The adoption of ASU

No.

2014

-

09

has

no

impact on the Company’s accounts receivable as it was historically recorded net of allowance for doubtful accounts and contractual adjustments. The following tables present the effect on the interim condensed consolidated statements of operations for the

three

months and

nine

months ended

September 30, 2017

for the accounting change that was retrospectively adopted on

January 1, 2018:

Consolidated Statements of Operations

(

in thousands

)

	Three Months Ended September 30, 2017
	As Previously Reported		Effect of Accounting Change			As Adjusted
Net patient revenues	$	230,048	$	(789	)	$	229,259
Net operating revenues		241,985		(789	)		241,196
Other operating expenses		64,039		(789	)		63,250
Total costs and expenses		232,200		(789	)		231,411
Net income	$	11,184	$	–		$	11,184

	Nine Months Ended September 30, 2017
	As Previously Reported		Effect of Accounting Change			As Adjusted
Net patient revenues	$	685,854	$	(2,256	)	$	683,598
Net operating revenues		720,685		(2,256	)		718,429
Other operating expenses		190,778		(2,256	)		188,522
Total costs and expenses		682,898		(2,256	)		680,642
Net income	$	34,386	$	–		$	34,386

In

January 2016,

the FASB issued ASU

No.

2016–01,

 “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities(Topic

825

).” ASU

No.

2016–01

revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU

No.

2016–01

requires the change in fair value of many equity investments to be recognized in net income.  On

January 1, 2018,

the Company adopted the provisions of ASU

No.

2016

-

01

using the modified retrospective method as required by the standard. The adoption of ASU

No.

 

2016

-

01

resulted in a

$68,073,000

reclassification of net unrealized gains from accumulated other comprehensive income (“AOCI”) to the opening balance of retained earnings. For the

three

months and

nine

months ended

September 30, 2018,

the Company recognized a gain of

$3,486,000

and

$417,000,

respectively, in our interim condensed consolidated statement of operations related to the change in fair value of our marketable equity securities.  The adoption of ASU

No.

 

2016

-

01

increases the volatility of other income due to the market fluctuation of our marketable equity securities.

In

August 2016,

the FASB issued ASU

No.

 

2016

-

15,

“Clarification on Classification of Certain Cash Receipts and Cash Payments on the Statements of Cash Flows.” ASU

No.

 

2016

-

15

was issued to create consistency in the classification of

eight

specific cash flow items and provides an accounting policy election for classifying distributions received from equity method investments. Such equity method investment distributions are now classified using a

1

) cumulative earnings approach, or

2

) nature of distribution approach. On

January 1, 2018,

the Company adopted the provisions of ASU

No.

2016

-

15

and this standard did

not

have a material impact on our consolidated financial statements.

In

May 2017,

the FASB issued ASU

No.

 

2017

-

09,

“Compensation – Stock Compensation (Topic

718

): Scope of Modification Accounting.” ASU

No.

 

2017

-

09

amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification ("ASC") 

718.

On

January 1, 2018,

the Company adopted the provisions of ASU

No.

2017

-

09

and this standard did

not

have a material impact on our consolidated financial statements.

In

February 2018,

the FASB issued ASU

No.

 

2018

-

02,

“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU

No.

 

2018

-

02

permits a company to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act of

2017

to retained earnings. The FASB refers to these amounts as “stranded tax effects.” On

January 1, 2018,

the Company early adopted the provisions of ASU

No.

2018

-

02.

The adoption of this standard resulted in an adjustment of accumulated other comprehensive income, with a corresponding adjustment to the opening balance of retained earnings in the amount of

$128,000,

related to the stranded tax effects of the unrealized losses in our restricted marketable debt securities.

Recent Accounting Guidance

Not

Yet Adopted      

In

February 2016,

the FASB issued ASU

No.

 

2016

-

02,

"Leases (Topic

842

)." The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. We anticipate this standard will have a material impact on our consolidated financial statements and will result in an increase to total assets and total liabilities. Additionally, we are currently evaluating the impact this standard will have on our policies and procedures and internal control framework.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

"Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments."  ASU

No.

2016

-

13

replaces the current incurred loss impairment methodology for credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  This ASU is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those annual periods, with early adoption permitted for fiscal years beginning after

December 15, 2018. 

We are currently evaluation the impact this standard will have on our policies and procedures and internal control framework.

Segment Reporting, Policy [Policy Text Block]

Segment Reporting

In accordance with the provisions of ASC

280,

“Segment Reporting”, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has

two

reportable operating segments: (

1

) inpatient services, which includes the operation of skilled nursing facilities and assisted and independent living facilities, and (

2

) homecare services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note

6

for further disclosure of the Company’s operating segments.

Other Operating Expenses Policy [Policy Text Block]

Other Operating Expenses

Other operating expenses include the costs of care and services that we provide to the residents of our facilities and the costs of maintaining our facilities. Our primary patient care costs include drugs, medical supplies, purchased professional services, food, and professional liability insurance and licensing fees. The primary facility costs include utilities and property insurance.

Selling, General and Administrative Expenses, Policy [Policy Text Block]

General and Administrative Costs

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were

$7,805,000

 and

$21,056,000

for the

three

months and

nine

months ended

September 30, 2018,

respectively. General and administrative costs were

$7,180,000

and

$22,442,000

for the

three

months and

nine

months ended

September 30, 2017,

respectively.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided by the straight-line method over the expected useful lives of the assets estimated as follows: buildings and improvements,

20

-

40

years and equipment and furniture,

3

-

15

years. Leasehold improvements are amortized over periods that do

not

exceed the non-cancelable respective lease terms using the straight-line method.

Capital leases are recorded at the lower of fair market value or the present value of future minimum lease payments. Capital leases are amortized in accordance with the provision codified within Accounting Standards Codification (“ASC”) Subtopic

840

-

30,

Leases – Capital Leases

. Amortization of capital lease assets is included in depreciation and amortization expense.

Liability Reserve Estimate, Policy [Policy Text Block]

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. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.

Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on alleged negligence by skilled nursing facilities and their employees in providing care to residents. As of

September 30, 2018,

we and/or our managed centers are defendants in

65

such claims. It remains possible that those pending matters plus potential unasserted claims could exceed our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.

We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverages include both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.

Continuing Care Retirement Communities, Advance Fees, Policy [Policy Text Block]

Continuing Care Contracts and Refundable Entrance Fee

We have

one

Continuing Care Retirement Community (”CCRC”) within our operations. Residents at this retirement center

may

enter into continuing care contracts with us. The contracts provide that

10%

of the resident entry fee becomes non-refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lessor of the price at which the apartment is re-assigned or

90%

of the original entry fee, plus

40%

of any appreciation if the apartment exceeds the original resident’s entry fee.

Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarially determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are

not

included as part of the transaction price and are classified as non-current liabilities in the Company's consolidated balance sheets. The balances of refundable entrance fees as of

September 30, 2018

and

December 31, 2017

were

$8,668,000

and

$8,827,000,

respectively.

Obligation to Provide Future Services

We annually estimate the present value of the cost of future services and the use of facilities to be provided to the current CCRC residents and compare that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income. As of

September 30, 2018,

and

December 31, 2017,

we have recorded a future service obligation in the amount of

$2,887,000.

Other Noncurrent Liabilities [Policy Text Block]

Other Noncurrent Liabilities

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions.

Revenue Recognition, Deferred Revenue [Policy Text Block]

Deferred Revenue

Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”), the non-refundable portion (

10%

) of CCRC entrance fees being amortized over the remaining life expectancies of the residents, and premiums received within our workers’ compensation and professional liability companies that are

not

yet earned.

Noncontrolling Interest, Policy [Policy Text Block]

Noncontrolling Interest

The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

Variable Interest Entities

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) are the sole entity that has the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and

may

or

may

not

be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in limited liability companies” in the consolidated balance sheets.

Reclassification, Policy [Policy Text Block]

Prior Period Classifications

Certain amounts in prior periods have been reclassified to conform with current period presentation.

XML

Note 2 - Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Prospective Adoption of New Accounting Pronouncements [Table Text Block]

	Three Months Ended September 30, 2017
	As Previously Reported		Effect of Accounting Change			As Adjusted
Net patient revenues	$	230,048	$	(789	)	$	229,259
Net operating revenues		241,985		(789	)		241,196
Other operating expenses		64,039		(789	)		63,250
Total costs and expenses		232,200		(789	)		231,411
Net income	$	11,184	$	–		$	11,184

	Nine Months Ended September 30, 2017
	As Previously Reported		Effect of Accounting Change			As Adjusted
Net patient revenues	$	685,854	$	(2,256	)	$	683,598
Net operating revenues		720,685		(2,256	)		718,429
Other operating expenses		190,778		(2,256	)		188,522
Total costs and expenses		682,898		(2,256	)		680,642
Net income	$	34,386	$	–		$	34,386

XML

Note 3 - Net Patient Revenues (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended September 30				Nine Months Ended September 30
(in thousands)	2018		2017		2018		2017
Net patient revenues:
Inpatient services	$	220,099	$	213,814	$	652,066	$	636,311
Homecare		14,728		15,445		45,107		47,287
Total net patient revenue	$	234,827	$	229,259	$	697,173	$	683,598

	Three Months Ended September 30						Nine Months Ended September 30
Source	2018			2017			2018			2017
Medicare		34	%		34	%		35	%		35	%
Managed Care		12	%		13	%		12	%		13	%
Medicaid		27	%		27	%		26	%		26	%
Private Pay and Other		27	%		26	%		27	%		26	%
Total		100	%		100	%		100	%		100	%

XML

Note 4 - Other Revenues (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Other Revenues [Table Text Block]

	Three Months Ended September 30				Nine Months Ended September 30
(in thousands)	2018		2017		2018		2017
Rental income	$	5,548	$	5,500	$	16,633	$	16,501
Management and accounting services fees		3,818		4,130		11,265		11,741
Insurance services		1,716		2,077		5,362		5,721
Other		417		230		996		868
Total other revenues	$	11,499	$	11,937	$	34,256	$	34,831

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Note 5 - Non-operating Income (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Other Nonoperating Income, by Component [Table Text Block]

	Three Months Ended September 30				Nine Months Ended September 30
(in thousands)	2018		2017		2018			2017
Equity in earnings/(losses) of unconsolidated investments	$	2,724	$	2,528	$	(1,860	)	$	5,908
Dividends and net realized gains on sales of securities		1,777		1,696		5,374			5,319
Interest income		1,916		1,866		5,492			4,820
Gain on acquisition of equity method investment		2,050		–		2,050			–
Total non-operating income	$	8,467	$	6,090	$	11,056		$	16,047

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Note 6 - Business Segments (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended September 30, 2018
	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	220,099	$	14,728	$	–		$	234,827
Other revenues		136		–		11,363			11,499
Net operating revenues		220,235		14,728		11,363			246,326
Costs and expenses:
Salaries, wages and benefits		131,418		8,367		9,403			149,188
Other operating		57,371		4,797		2,339			64,507
Rent		8,255		488		1,447			10,190
Depreciation and amortization		9,570		55		812			10,437
Interest		369		–		801			1,170
Total costs and expenses		206,983		13,707		14,802			235,492
Income (loss) from operations		13,252		1,021		(3,439	)		10,834
Non-operating income		–		–		8,467			8,467
Unrealized gains on marketable equity securities		–		–		3,486			3,486
Income before income taxes	$	13,252	$	1,021	$	8,514		$	22,787

	Three Months Ended September 30, 2017
(As adjusted)	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	213,814	$	15,445	$	–		$	229,259
Other revenues		181		–		11,756			11,937
Net operating revenues		213,995		15,445		11,756			241,196
Costs and expenses:
Salaries, wages and benefits		128,403		8,318		9,179			145,900
Other operating		56,062		5,291		1,897			63,250
Rent		8,128		502		1,476			10,106
Depreciation and amortization		9,756		41		1,036			10,833
Interest		423		–		899			1,322
Total costs and expenses		202,772		14,152		14,487			231,411
Income (loss) from operations		11,223		1,293		(2,731	)		9,785
Non-operating income		–		–		6,090			6,090
Income before income taxes	$	11,223	$	1,293	$	3,359		$	15,875

	Nine Months Ended September 30, 2018
	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	652,066	$	45,107	$	–		$	697,173
Other revenues		588		–		33,668			34,256
Net operating revenues		652,654		45,107		33,668			731,429
Costs and expenses:
Salaries, wages and benefits		382,913		25,009		26,827			434,749
Other operating		171,275		14,816		6,177			192,268
Rent		24,780		1,460		4,451			30,691
Depreciation and amortization		28,602		137		2,437			31,176
Interest		1,149		-		2,514			3,663
Total costs and expenses		608,719		41,422		42,406			692,547
Income (loss) from operations		43,935		3,685		(8,738	)		38,882
Non-operating income		–		–		11,056			11,056
Unrealized gains on marketable equity securities		–		–		417			417
Income before income taxes	$	43,935	$	3,685	$	2,735		$	50,355

	Nine Months Ended September 30, 2017
(As adjusted)	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	636,311	$	47,287	$	–		$	683,598
Other revenues		631		–		34,200			34,831
Net operating revenues		636,942		47,287		34,200			718,429
Costs and expenses:
Salaries, wages and benefits		373,641		24,760		28,238			426,639
Other operating		167,454		15,484		5,584			188,522
Rent		24,552		1,490		4,231			30,273
Depreciation and amortization		28,362		120		3,127			31,609
Interest		1,309		–		2,290			3,599
Total costs and expenses		595,318		41,854		43,470			680,642
Income (loss) from operations		41,624		5,433		(9,270	)		37,787
Non-operating income		–		–		16,047			16,047
Income before income taxes	$	41,624	$	5,433	$	6,777		$	53,834

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Note 7 - Long-term Leases (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Capital Leased Assets [Table Text Block]

	September 30, 2018			December 31, 2017
	(in thousands)
Buildings and personal property	$	39,032		$	39,032
Accumulated amortization		(17,989	)		(15,045	)
	$	21,043		$	23,987

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

	Operating Leases		Capital Leases
	(in thousands)
2019	$	34,200	$	5,200
2020		34,200		5,200
2021		34,200		5,200
2022		34,200		5,200
2023		34,200		5,200
Thereafter		116,900		2,167
Total minimum lease payments	$	287,900	$	28,167
Less: Amounts representing interest				(4,170	)
Present value of minimum lease payments				23,997
Less: Current portion				(3,865	)
Long-term capital lease obligations			$	20,132

XML

Note 8 - Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Basic:
Weighted average common shares outstanding		15,225,654		15,195,394		15,221,217		15,186,315
Net income attributable to National HealthCare Corporation	$	21,142	$	11,352	$	40,812	$	34,735
Earnings per common share, basic	$	1.39	$	0.75	$	2.68	$	2.29
Diluted:
Weighted average common shares outstanding		15,225,654		15,195,394		15,221,217		15,186,315
Dilutive effect of stock options		16,432		25,173		9,475		31,482
Weighted average common shares outstanding		15,242,086		15,220,567		15,230,692		15,217,797
Net income attributable to National HealthCare Corporation	$	21,142	$	11,352	$	40,812	$	34,735
Earnings per common share, diluted	$	1.39	$	0.75	$	2.68	$	2.28

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Note 9 - Investments in Marketable Securities (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Available-for-sale Securities [Table Text Block]

	September 30, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investments available for sale:
Marketable equity securities	$	30,176	$	139,502	$	30,176	$	139,085
Restricted investments available for sale:
Corporate debt securities		67,905		66,190		65,107		65,461
Commercial mortgage–backed securities		57,626		56,293		54,030		53,544
U.S. Treasury securities		23,497		22,540		21,685		21,172
State and municipal securities		23,679		23,011		26,455		26,218
	$	202,883	$	307,536	$	197,453	$	305,480

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

	September 30, 2018						December 31, 2017
	Shares		Cost		Fair Value		Shares		Cost		Fair Value
NHI Common Stock		1,630,642	$	24,734	$	123,260		1,630,642	$	24,734	$	122,918

Investments Classified by Contractual Maturity Date [Table Text Block]

	September 30, 2018				December 31, 2017
	Cost		Fair Value		Cost		Fair Value
Maturities:
Within 1 year	$	19,273	$	19,220	$	18,492	$	18,499
1 to 5 years		88,952		87,276		70,331		70,157
6 to 10 years		63,282		60,340		77,657		76,943
Over 10 years		1,200		1,198		797		796
	$	172,707	$	168,034	$	167,277	$	166,395

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Note 10 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	Fair Value Measurements Using
September 30, 2018	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	55,599	$	55,599	$	–	$	–
Restricted cash and cash equivalents		12,134		12,134		–		–
Marketable equity securities		139,502		139,502		–		–
Corporate debt securities		66,190		43,901		22,289		–
Mortgage–backed securities		56,293		–		56,293		–
U.S. Treasury securities		22,540		22,540		–		–
State and municipal securities		23,011		–		23,011		–
Total financial assets	$	375,269	$	273,676	$	101,593	$	–

	Fair Value Measurements Using
December 31, 2017	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	59,118	$	59,118	$	–	$	–
Restricted cash and cash equivalents		8,303		8,303		–		–
Marketable equity securities		139,085		139,085		–		–
Corporate debt securities		65,461		43,073		22,388		–
Mortgage-backed securities		53,544		–		53,544		–
U.S. Treasury securities		21,172		21,172		–		–
State and municipal securities		26,218		–		26,218		–
Total financial assets	$	372,901	$	270,751	$	102,150	$	–

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Note 11 - Long-term Debt (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Debt [Table Text Block]

	Weighted Average Interest Rate		Maturities		September 30, 2018		December 31, 2017
	Variable				(dollars in thousands)
Credit Facility, interest payable monthly		3.6%		2020	$	75,000	$	90,000
Unsecured term note payable to National, interest payable quarterly, principal payable at maturity		4.5%		2028		–		10,000
						75,000		100,000
Less current portion						–		–
					$	75,000	$	100,000

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Note 13 - Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	September 30, 2018		December 31, 2017
Risk–free interest rate		2.5%		2.1%
Expected volatility		16.1%		16.6%
Expected life, in years		3.0		4.8
Expected dividend yield		3.3%		3.1%

Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2017		177,959		$	55.48	$	–
Options granted		1,125,443			72.96		–
Options exercised		(48,995	)		51.25		–
Options cancelled		(15,000	)		72.94		–
Options outstanding at December 31, 2017		1,239,407			71.19		–
Options granted		110,821			61.40		–
Options exercised		(33,526	)		51.25		–
Options cancelled		(50,000	)		72.94		–
Options outstanding at September 30, 2018		1,266,702		$	70.79	$	5,800,000
Options vested at September 30, 2018		210,881		$	63.35	$	2,535,000

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

Options Outstanding September 30, 2018		Exercise Prices			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
	218,427	$52.93	-	$62.78	$	60.48		2.7
	1,048,275		$72.94			72.94		3.4
	1,266,702				$	70.79		3.3

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Note 1 - Description of Business (Details Textual)	Sep. 30, 2018
Number of Skilled Nursing Centers	76
Number of Beds	9,604
Number of Assisted Living Facilities	24
Number of Independent Living Facilities	5
Number of Geriatric Psychiatric Hospitals	1
Number of Homecare Programs	35
Number of States in which Entity Operates	10

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Note 2 - Summary of Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Equity Securities, FV-NI, Unrealized Gain (Loss), Total	$ 3,486,000		$ 417,000
Number of Reportable Segments			2
Customer Refundable Fees	8,668,000		$ 8,668,000		$ 8,827,000
Continuing Care Retirement Communities, Refund Obligation	2,887,000		$ 2,887,000		2,887,000
Refundable Advance Fees [Member]
Nonrefundable Resident Entry Fee Percentage			10.00%
Customer Refundable Fees	8,668,000		$ 8,668,000		$ 8,827,000
Original Entry Fee [Member]
Refundable Resident Entry Fee Percentage			90.00%
Appreciation [Member]
Appreciation of Apartment Over Original Residents Entry Fee Percentage			40.00%
Building and Building Improvements [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life			20 years
Building and Building Improvements [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life			40 years
Equipment and Furniture [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life			3 years
Equipment and Furniture [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life			15 years
Corporate Office Costs [Member]
General and Administrative Expense, Total	$ 7,805,000	$ 7,180,000	$ 21,056,000	$ 22,442,000
Accounting Standards Update 2016-01 [Member]
Reclassification of Net Unrealized Gains From AOCI To Retained Earnings			68,073,000
Accounting Standards Update 2018-02 [Member]
Reclassification of Stranded Tax Effects From AOCI to Retained Earnings			$ 128,000

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Note 2 - Summary of Significant Accounting Policies - Effect of Accounting Change (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net operating revenues	$ 246,326	$ 241,196	$ 731,429	$ 718,429
Other operating expenses	64,507	63,250	192,268	188,522
Total costs and expenses	235,492	231,411	692,547	680,642
Net income	21,087	11,184	40,563	34,386
Previously Reported [Member]
Net operating revenues		241,985		720,685
Other operating expenses		64,039		190,778
Total costs and expenses		232,200		682,898
Net income		11,184		34,386
Restatement Adjustment [Member]
Net operating revenues		(789)		(2,256)
Other operating expenses		(789)		(2,256)
Total costs and expenses		(789)		(2,256)
Net income
Net Patient Revenues [Member]
Revenues	$ 234,827	229,259	$ 697,173	683,598
Net Patient Revenues [Member] | Previously Reported [Member]
Revenues		230,048		685,854
Net Patient Revenues [Member] | Restatement Adjustment [Member]
Revenues		$ (789)		$ (2,256)

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Note 3 - Net Patient Revenues (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Provision for Doubtful Accounts	$ 1,098,000	$ 3,121,000	$ 982,000	$ 3,215,000
Medicare and Medicaid [Member]
Allowance for Doubtful Accounts Receivable, Ending Balance	$ 17,596,000		$ 17,596,000		$ 17,389,000

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Note 3 - Net Patient Revenues - Revenue Disaggregation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue, concentration percentage	100.00%	100.00%	100.00%	100.00%
Net Patient Revenues [Member]
Net patient revenues	$ 234,827	$ 229,259	$ 697,173	$ 683,598
Medicare [Member]
Revenue, concentration percentage	34.00%	34.00%	35.00%	35.00%
Inpatient Services [Member] | Net Patient Revenues [Member]
Net patient revenues	$ 220,099	$ 213,814	$ 652,066	$ 636,311
Managed Care [Member]
Revenue, concentration percentage	12.00%	13.00%	12.00%	13.00%
Homecare [Member] | Net Patient Revenues [Member]
Net patient revenues	$ 14,728	$ 15,445	$ 45,107	$ 47,287
Medicaid [Member]
Revenue, concentration percentage	27.00%	27.00%	26.00%	26.00%
Private Pay and Other [Member]
Revenue, concentration percentage	27.00%	26.00%	27.00%	26.00%

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Note 4 - Other Revenues (Details Textual)	3 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)
Number of Skilled Nursing Centers	76		76
Insurance Services Revenue, Total	$ 1,716,000	$ 2,077,000	$ 5,362,000	$ 5,721,000
Workers Compensation Revenue [Member]
Insurance Services Revenue, Total	1,043,000	1,399,000	3,342,000	4,087,000
Professional Liability Insurance [Member]
Insurance Services Revenue, Total	$ 673,000	678,000	$ 2,020,000	1,634,000
National [Member]
Number of Skilled Nursing Centers	5		5
Property Management Fee Revenue	$ 1,087,000	$ 977,000	$ 3,140,000	$ 2,902,000

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Note 4 - Other Revenues - Summary of Other Revenues (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Rental income	$ 5,548	$ 5,500	$ 16,633	$ 16,501
Management and accounting services fees	3,818	4,130	11,265	11,741
Insurance services	1,716	2,077	5,362	5,721
Other	417	230	996	868
Total other revenues	$ 11,499	$ 11,937	$ 34,256	$ 34,831

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Note 5 - Non-operating Income (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Gain (Loss) on Acquisition of Equity Method Investment	$ 2,050,000		$ 2,050,000
Goodwill, Ending Balance	$ 20,995,000		$ 20,995,000		$ 17,600,000
Caris [Member]
Equity Method Investment, Ownership Percentage	75.10%		75.10%
Loss Contingency, Damages Paid, Value			$ 8,364,000
Psychiatric Hospital in Osage Beach, Missouri [Member]
Gain (Loss) on Acquisition of Equity Method Investment	$ 2,050,000
Goodwill, Ending Balance	$ 3,395,000		$ 3,395,000

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Note 5 - Non-operating Income - Summary of Non-operating Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Equity in earnings/(losses) of unconsolidated investments	$ 2,724	$ 2,528	$ (1,860)	$ 5,908
Dividends and net realized gains on sales of securities	1,777	1,696	5,374	5,319
Interest income	1,916	1,866	5,492	4,820
Gain on acquisition of equity method investment	2,050		2,050
Total non-operating income	$ 8,467	$ 6,090	$ 11,056	$ 16,047

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Note 6 - Business Segments (Details Textual)	9 Months Ended
	Sep. 30, 2018
Number of Operating Segments	2
Number of Reportable Segments	2

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Note 6 - Business Segments - Summary of Financial Information by Reporting Segment (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenues:
Other revenues	$ 11,499,000	$ 11,937,000	$ 34,256,000	$ 34,831,000
Net operating revenues	246,326,000	241,196,000	731,429,000	718,429,000
Costs and expenses:
Salaries, wages and benefits	149,188,000	145,900,000	434,749,000	426,639,000
Other operating	64,507,000	63,250,000	192,268,000	188,522,000
Rent	10,190,000	10,106,000	30,691,000	30,273,000
Depreciation and amortization	10,437,000	10,833,000	31,176,000	31,609,000
Interest	1,170,000	1,322,000	3,663,000	3,599,000
Total costs and expenses	235,492,000	231,411,000	692,547,000	680,642,000
Income (loss) from operations	10,834,000	9,785,000	38,882,000	37,787,000
Non-operating income	8,467,000	6,090,000	11,056,000	16,047,000
Unrealized gains on marketable equity securities	3,486,000		417,000
Income before income taxes	22,787,000	15,875,000	50,355,000	53,834,000
Net Patient Revenues [Member]
Revenues:
Net patient revenues	234,827,000	229,259,000	697,173,000	683,598,000
Inpatient Services Segment [Member]
Revenues:
Other revenues	136,000	181,000	588,000	631,000
Net operating revenues	220,235,000	213,995,000	652,654,000	636,942,000
Costs and expenses:
Salaries, wages and benefits	131,418,000	128,403,000	382,913,000	373,641,000
Other operating	57,371,000	56,062,000	171,275,000	167,454,000
Rent	8,255,000	8,128,000	24,780,000	24,552,000
Depreciation and amortization	9,570,000	9,756,000	28,602,000	28,362,000
Interest	369,000	423,000	1,149,000	1,309,000
Total costs and expenses	206,983,000	202,772,000	608,719,000	595,318,000
Income (loss) from operations	13,252,000	11,223,000	43,935,000	41,624,000
Non-operating income
Unrealized gains on marketable equity securities
Income before income taxes	13,252,000	11,223,000	43,935,000	41,624,000
Inpatient Services Segment [Member] | Net Patient Revenues [Member]
Revenues:
Net patient revenues	220,099,000	213,814,000	652,066,000	636,311,000
Homecare Services Segment [Member]
Revenues:
Other revenues
Net operating revenues	14,728,000	15,445,000	45,107,000	47,287,000
Costs and expenses:
Salaries, wages and benefits	8,367,000	8,318,000	25,009,000	24,760,000
Other operating	4,797,000	5,291,000	14,816,000	15,484,000
Rent	488,000	502,000	1,460,000	1,490,000
Depreciation and amortization	55,000	41,000	137,000	120,000
Interest
Total costs and expenses	13,707,000	14,152,000	41,422,000	41,854,000
Income (loss) from operations	1,021,000	1,293,000	3,685,000	5,433,000
Non-operating income
Unrealized gains on marketable equity securities
Income before income taxes	1,021,000	1,293,000	3,685,000	5,433,000
Homecare Services Segment [Member] | Net Patient Revenues [Member]
Revenues:
Net patient revenues	14,728,000	15,445,000	45,107,000	47,287,000
Other Segments [Member]
Revenues:
Other revenues	11,363,000	11,756,000	33,668,000	34,200,000
Net operating revenues	11,363,000	11,756,000	33,668,000	34,200,000
Costs and expenses:
Salaries, wages and benefits	9,403,000	9,179,000	26,827,000	28,238,000
Other operating	2,339,000	1,897,000	6,177,000	5,584,000
Rent	1,447,000	1,476,000	4,451,000	4,231,000
Depreciation and amortization	812,000	1,036,000	2,437,000	3,127,000
Interest	801,000	899,000	2,514,000	2,290,000
Total costs and expenses	14,802,000	14,487,000	42,406,000	43,470,000
Income (loss) from operations	(3,439,000)	(2,731,000)	(8,738,000)	(9,270,000)
Non-operating income	8,467,000	6,090,000	11,056,000	16,047,000
Unrealized gains on marketable equity securities	3,486,000		417,000
Income before income taxes	8,514,000	3,359,000	2,735,000	6,777,000
Other Segments [Member] | Net Patient Revenues [Member]
Revenues:
Net patient revenues

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Note 7 - Long-term Leases (Details Textual)	3 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)
Two Leases with NHI [Member]
Number of Skilled Nursing Centers Leased from NHI	35		35
Number of Assisted Living Centers Leased from NHI	7		7
Number of Independent Living Centers Leased from NHI	3		3
Number of Lease Agreements with NHI	2		2
Operating Leases, Rent Expense, Minimum Rentals			$ 34,200,000
Operating Lease Additional Percentage Rent Percentage			4.00%
Both NHI Lease Agreements [Member]
Operating Leases Percentage Rent Expense	$ 9,478,000	$ 9,314,000	$ 28,434,000	$ 27,942,000

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Note 7 - Long-term Leases - Fixed Assets Recorded Under Capital Leases (Details) - Buildings and Personal Property [Member] - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Buildings and personal property	$ 39,032	$ 39,032
Accumulated amortization	(17,989)	(15,045)
Total capital leases	$ 21,043	$ 23,987

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Note 7 - Long-term Leases - Future Minimum Lease Payments (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
2019, operating leases	$ 34,200
2019, capital leases	5,200
2020, operating leases	34,200
2020, capital leases	5,200
2021, operating leases	34,200
2021, capital leases	5,200
2022, operating leases	34,200
2022, capital leases	5,200
2023, operating leases	34,200
2023, capital leases	5,200
Thereafter, operating leases	116,900
Thereafter, capital leases	2,167
Total minimum lease payments, operating leases	287,900
Total minimum lease payments, capital leases	28,167
Less: Amounts representing interest, capital leases	(4,170)
Present value of minimum lease payments, capital leases	23,997
Less: Current portion, capital leases	(3,865)	$ (3,696)
Long-term capital lease obligations, capital leases	$ 20,132	$ 23,052

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Note 8 - Earnings Per Share (Details Textual) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,048,275	1,122,585	1,048,275	1,122,585

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Note 8 - Earnings Per Share - Summary of Earnings and Weighted Average Number of Common Shares Used in Calculation of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Basic:
Weighted average common shares outstanding (in shares)	15,225,654	15,195,394	15,221,217	15,186,315
Net income attributable to National HealthCare Corporation	$ 21,142	$ 11,352	$ 40,812	$ 34,735
Earnings per common share, basic (in dollars per share)	$ 1.39	$ 0.75	$ 2.68	$ 2.29
Diluted:
Weighted average common shares outstanding (in shares)	15,225,654	15,195,394	15,221,217	15,186,315
Weighted average common shares outstanding (in shares)	15,242,086	15,220,567	15,230,692	15,217,797
Net income attributable to National HealthCare Corporation	$ 21,142	$ 11,352	$ 40,812	$ 34,735
Earnings per common share, diluted (in dollars per share)	$ 1.39	$ 0.75	$ 2.68	$ 2.28
Employee Stock Option [Member]
Diluted:
Dilutive effect of share-based awards (in shares)	16,432	25,173	9,475	31,482

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Note 9 - Investments in Marketable Securities (Details Textual) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Equity Securities Fv Ni Gross Unrealized Gain	$ 109,331,000		$ 109,331,000		$ 108,933,000
Equity Securities Fv Ni Gross Unrealized Loss	5,000		5,000		24,000
Equity Securities, FV-NI, Unrealized Gain (Loss), Total	3,486,000		417,000
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax	73,000		73,000		823,000
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax	$ 4,746,000		4,746,000		1,705,000
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities, Total			0		$ 0
Proceeds from Sale of Debt Securities, Available-for-sale			4,539,000	46,598,000
Realized Investment Gains (Losses), Total			18,000	255,000
Proceeds from Sale and Maturity of Marketable Securities, Total			$ 0	$ 0

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Note 9 - Investments in Marketable Securities - Marketable Securities and Restricted Marketable Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Restricted investments available for sale, amortized cost	$ 172,707	$ 167,277
Restricted investments available for sale, fair value	168,034	166,395
Investments available for sale, amortized cost	202,883	197,453
Investments available for sale, fair value	307,536	305,480
Equity Securities [Member]
Unrestricted investments available for sale, amortized cost	30,176	30,176
Unrestricted investments available for sale, fair value	139,502	139,085
Corporate Debt Securities [Member]
Restricted investments available for sale, amortized cost	67,905	65,107
Restricted investments available for sale, fair value	66,190	65,461
Collateralized Mortgage Backed Securities [Member]
Restricted investments available for sale, amortized cost	57,626	54,030
Restricted investments available for sale, fair value	56,293	53,544
US Government Corporations and Agencies Securities [Member]
Restricted investments available for sale, amortized cost	23,497	21,685
Restricted investments available for sale, fair value	22,540	21,172
US States and Political Subdivisions Debt Securities [Member]
Restricted investments available for sale, amortized cost	23,679	26,455
Restricted investments available for sale, fair value	$ 23,011	$ 26,218

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Note 9 - Investments in Marketable Securities - Available for Sale Marketable Equity Securities (Details) - NHI Common Stock [Member] - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
NHI Common Stock, Shares (in shares)	1,630,642	1,630,642
NHI Common Stock, Cost	$ 24,734	$ 24,734
NHI Common Stock, Fair Value	$ 123,260	$ 122,918

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Note 9 - Investments in Marketable Securities - Amortized Cost and Estimated Fair Value of Debt Securities as Available for Sale (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Within 1 year, cost	$ 19,273	$ 18,492
Within 1 year, fair value	19,220	18,499
1 to 5 years, cost	88,952	70,331
1 to 5 years, fair value	87,276	70,157
6 to 10 years, cost	63,282	77,657
6 to 10 years, fair value	60,340	76,943
Over 10 years, cost	1,200	797
Over 10 years, fair value	1,198	796
Cost	172,707	167,277
Fair Value	$ 168,034	$ 166,395

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Note 10 - Fair Value Measurements - Summary of Fair Value Measurements by Level (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Restricted cash and cash equivalents	$ 12,134		$ 11,950
Available-for-sale securities	168,034	$ 166,395
Corporate Debt Securities [Member]
Available-for-sale securities	66,190	65,461
Collateralized Mortgage Backed Securities [Member]
Available-for-sale securities	56,293	53,544
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities	23,011	26,218
Fair Value, Measurements, Recurring [Member]
Cash and cash equivalents	55,599	59,118
Restricted cash and cash equivalents	12,134	8,303
Total financial assets	375,269	372,901
Fair Value, Measurements, Recurring [Member] | Equity Securities [Member]
Available-for-sale securities	139,502	139,085
Fair Value, Measurements, Recurring [Member] | Corporate Debt Securities [Member]
Available-for-sale securities	66,190	65,461
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Backed Securities [Member]
Available-for-sale securities	56,293	53,544
Fair Value, Measurements, Recurring [Member] | US Treasury Securities [Member]
Available-for-sale securities	22,540	21,172
Fair Value, Measurements, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities	23,011	26,218
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	55,599	59,118
Restricted cash and cash equivalents	12,134	8,303
Total financial assets	273,676	270,751
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Equity Securities [Member]
Available-for-sale securities	139,502	139,085
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Corporate Debt Securities [Member]
Available-for-sale securities	43,901	43,073
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Collateralized Mortgage Backed Securities [Member]
Available-for-sale securities
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | US Treasury Securities [Member]
Available-for-sale securities	22,540	21,172
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and cash equivalents
Restricted cash and cash equivalents
Total financial assets	101,593	102,150
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Equity Securities [Member]
Available-for-sale securities
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate Debt Securities [Member]
Available-for-sale securities	22,289	22,388
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Collateralized Mortgage Backed Securities [Member]
Available-for-sale securities	56,293	53,544
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | US Treasury Securities [Member]
Available-for-sale securities
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities	$ 23,011	$ 26,218

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Note 11 - Long-term Debt (Details Textual) - Bank of America [Member] - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2018	Mar. 31, 2018
Line of Credit Facility, Maximum Borrowing Capacity	$ 150	$ 175
Debt Instrument, Term	5 years
London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	1.40%
Base Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	0.40%

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Note 11 - Long-term Debt - Summary of Long-term Debt (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Long-term debt	$ 75	$ 100
Less current portion
Long-term debt, noncurrent	$ 75	100
Line of Credit [Member]
Long-term debt, weighted average interest rate	3.60%
Long-term debt, maturities	2020
Long-term debt	$ 75	90
Unsecured Term Note Payable [Member]
Long-term debt, weighted average interest rate	4.50%
Long-term debt, maturities	2028
Long-term debt		$ 10

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Note 12 - Stock Repurchase Program (Details Textual) - Common Stock [Member] - USD ($)	1 Months Ended	8 Months Ended
	Sep. 30, 2018	Aug. 31, 2018
Stock Repurchase Program, Authorized Amount		$ 25,000,000
Stock Repurchased and Retired During Period, Shares	0	14,506
Stock Repurchased and Retired During Period, Value		$ 867,000

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Note 13 - Stock-based Compensation (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Allocated Share-based Compensation Expense, Total	$ 361,000	$ 430,000	$ 1,538,000	$ 1,263,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total	$ 5,728,000		$ 5,728,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			3 years

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Note 13 - Stock-based Compensation - Summary of Assumptions Used to Value Options Granted (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Risk–free interest rate	2.50%	2.10%
Expected volatility	16.10%	16.60%
Expected life (Year)	3 years	4 years 292 days
Expected dividend yield	3.30%	3.10%

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Note 13 - Stock-based Compensation - Summary of Options Outstanding (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Options outstanding, shares (in shares)	1,239,407	177,959
Options outstanding, weighted average exercise price (in dollars per share)	$ 71.19	$ 55.48
Options granted, shares (in shares)	110,821	1,125,443
Options granted, weighted average exercise price (in dollars per share)	$ 61.40	$ 72.96
Options exercised, shares (in shares)	(33,526)	(48,995)
Options exercised, weighted average exercise price (in dollars per share)	$ 51.25	$ 51.25
Options cancelled, shares (in shares)	(50,000)	(15,000)
Options cancelled, weighted average exercise price (in dollars per share)	$ 72.94	$ 72.94
Options outstanding, aggregate intrinsic value	$ 5,800,000
Options outstanding, shares (in shares)	1,266,702	1,239,407
Options outstanding, weighted average exercise price (in dollars per share)	$ 70.79	$ 71.19
Options vested, shares (in shares)	210,881
Options vested, weighted average exercise price (in dollars per share)	$ 63.35
Options vested, aggregate intrinsic value	$ 2,535,000

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Note 13 - Stock-based Compensation - Options Outstanding by Exercise Price Range (Details)	9 Months Ended
	Sep. 30, 2018 $ / shares shares
Options outstanding (in shares) | shares	1,266,702
Weighted average exercise price (in dollars per share)	$ 70.79
Weighted average remaining contractual life (Year)	3 years 109 days
Exercise Price Range 1 [Member]
Options outstanding (in shares) | shares	218,427
Exercise price, lower range (in dollars per share)	$ 52.93
Exercise price, upper range (in dollars per share)	62.78
Weighted average exercise price (in dollars per share)	$ 60.48
Weighted average remaining contractual life (Year)	2 years 255 days
Exercise Price Range 2 [Member]
Options outstanding (in shares) | shares	1,048,275
Weighted average exercise price (in dollars per share)	$ 72.94
Weighted average remaining contractual life (Year)	3 years 146 days

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Note 14 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Income Tax Expense (Benefit), Total	$ 1,700,000	$ 4,691,000	$ 9,792,000	$ 19,448,000
Effective Income Tax Rate Reconciliation, Percent, Total	7.50%	29.50%	19.50%	36.10%
Effective Income Tax Rate Reconciliation, Gain on Acquisition of Equity Method Investment, Amount, Total	$ 547,000		$ 547,000
Effective Income Tax Rate Reconciliation, Benefit Resulting from Expiration of Applicable Statute Limitations, Amount	2,222,000		2,222,000	$ 1,753,000
Effective Income Tax Rate Reconciliation, Provision to Return Adjustment, Amount	$ 1,434,000		1,434,000
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Amount, Total			$ 945,000
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Percent, Total			1.90%
Effective Income Tax Rate Reconciliation, Benefit Resulting from Expiration of Applicable Statute Limitations, Percent				3.30%
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability					$ (8,488,000)

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Note 15 - Contingencies and Commitments (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Jun. 25, 2018	Dec. 31, 2017
Self Insurance Reserve	$ 95,787,000			$ 93,275,000
Direct Business Coverage Statutory Limits	1,000,000
Primary Insurance Coverage, Amount Per Incident	1,000,000
Primary Insurance Coverage, Amount Per Location	3,000,000
Annual Excess Coverage	$ 9,000,000	$ 9,000,000
Qui Tam [Member] | Caris [Member]
Loss Contingency Accrual, Ending Balance			$ 8,500,000
Caris [Member]
Equity Method Investment, Ownership Percentage	75.10%
Line of Credit [Member] | National Health Care [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 2,000,000
Long-term Line of Credit, Total	$ 0