Note 4 - Net Patient Revenues

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

Note 4 – Net Patient Revenues

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, assisted and independent living facilities, and a behavioral health hospital, and (2) homecare services.

	Three Months Ended June 30				Six Months Ended June 30
(in thousands)	2020		2019		2020		2019
Net patient revenues:
Inpatient services	$	214,387	$	220,887	$	445,374	$	442,521
Homecare		11,284		14,377		24,392		28,854
Total net patient revenue	$	225,671	$	235,264	$	469,766	$	471,375

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 period of care 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 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 did 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 June 30				Six Months Ended June 30
Source	2020		2019		2020		2019
Medicare		32%		33%		33%		34%
Managed Care		10%		11%		11%		11%
Medicaid		32%		29%		30%		28%
Private Pay and Other		26%		27%		26%		27%
Total		100%		100%		100%		100%

Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days (there is temporary relief from the three-day hospital stay during the COVID-19 emergency). 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 periods of care. An period of care is defined as a length of care up to 30 days with multiple continuous periods allowed. The services covered by the payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit.

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 center's 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 revenue is recorded on an accrual basis based upon the date of services at amounts equal to its established or estimated per-visit rates.     

Contract Liabilities

Included in the Company’s condensed consolidated balance sheets are contract liabilities, which represent payments the Company receives in advance of services provided. As of June 30, 2020, the Company has recorded $50,992,000 in contract liabilities related to receipts from the Medicare Accelerated and Advance Payment Program. These funds will begin to be applied against claims for services provided to Medicare patients after approximately 120 days from the date we received the funds. The payback period will be for approximately 90 days; therefore, any remaining unapplied accelerated payment proceeds will be repaid within 210 days.  Recoupment of the accelerated payments received by the Company is currently expected to begin in August 2020.

A summary of the contract liabilities are follows (in thousands):

Balance at December 31, 2019	$	-
Payments received		50,992
Payments recognized		-
Balance at June 30, 2020	$	50,992

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 following 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. 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 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 $17,824,000 and $15,108,000 as of June 30, 2020 and December 31, 2019, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.