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 March 31, ~~2020~~2021
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

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading

Symbols(s)

Name of each exchange on which registered

Common, $0.01 par value

NHC

NYSE American


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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files). Yes ☒ 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 ☒	Accelerated filer ☐

Non–accelerated filer ☐	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 ☒

~~15,357,674~~15,393,140 shares of common stock of the registrant were outstanding as of May 4, ~~2020.~~2021.

Table of Contents

Three Months Ended
March 31

2020

2019

Revenues:

Net patient revenues
$ 244,095 $ 236,111
Other revenues
12,029 12,174
Net operating revenues
256,124 248,285

Cost and expenses:

Salaries, wages and benefits
147,469 141,388
Other operating
71,668 69,432
Facility rent
10,332 10,238
Depreciation and amortization
10,438 10,517
Interest
412 926
Total costs and expenses
240,319 232,501

Income from operations
15,805 15,784

Other income:

Non–operating income
8,146 6,001
Unrealized gains/(losses) on marketable equity securities
(60,392
)
6,838

Income/(loss) before income taxes
(36,441
)
28,623
Income tax (provision)/benefit
9,625 (7,392
)
Net income/(loss)
(26,816
)
21,231
(Income)/loss attributable to noncontrolling interest
(36
)
38

Net income/(loss) attributable to National HealthCare Corporation
$ (26,852
)
$ 21,269

Earnings/(loss) per share attributable to National HealthCare Corporation stockholders:

Basic
$ (1.76
)
$ 1.39
Diluted
$ (1.76
)
$ 1.39

Weighted average common shares outstanding:

Basic
15,294,777 15,256,189
Diluted
15,294,777 15,324,125

Dividends declared per common share
$ 0.52 $ 0.50

	Three Months Ended March 31
	2021			2020

Revenues:
Net patient revenues	$	216,855		$	244,095
Other revenues		11,369			12,029
Government stimulus income		22,749			0
Net operating revenues and grant income		250,973			256,124

Cost and expenses:
Salaries, wages, and benefits		145,130			147,469
Other operating		70,153			71,668
Facility rent		10,063			10,332
Depreciation and amortization		10,161			10,438
Interest		244			412
Total costs and expenses		235,751			240,319

Income from operations		15,222			15,805

Other income:
Non–operating income		6,260			8,146
Unrealized gains/(losses) on marketable equity securities		7,059			(60,392	)

Income/(loss) before income taxes		28,541			(36,441	)
Income tax (provision)/benefit		(7,233	)		9,625
Net income/(loss)		21,308			(26,816	)
Net income attributable to noncontrolling interest		(41	)		(36	)

Net income/(loss) attributable to National HealthCare Corporation	$	21,267		$	(26,852	)

Earnings/(loss) per share attributable to National HealthCare Corporation stockholders:
Basic	$	1.39		$	(1.76	)
Diluted	$	1.38		$	(1.76	)

Weighted average common shares outstanding:
Basic		15,327,520			15,294,777
Diluted		15,390,076			15,294,777

Dividends declared per common share	$	0.52		$	0.52

Three Months Ended
March 31

2020

2019

Net income/(loss)
$ (26,816
)
$ 21,231

Other comprehensive income/(loss):

Unrealized gains/(losses) on investments in restricted marketable debt securities
(2,545
)
3,225
Reclassification adjustment for realized gains on sale of securities
(2
)
-
Income tax (expense)/benefit related to items of other comprehensive income/(loss)
535 (677
)
Other comprehensive income/(loss), net of tax
(2,012
)
2,548

Net (income)/loss attributable to noncontrolling interest
(36
)
38

Comprehensive income/(loss) attributable to National HealthCare Corporation
$ (28,864
)
$ 23,817

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

	Three Months Ended March 31
	2021			2020

Net income/(loss)	$	21,308		$	(26,816	)

Other comprehensive loss:
Unrealized losses on investments in marketable debt securities		(2,440	)		(2,545	)
Reclassification adjustment for realized gains on sales of marketable debt securities		0			(2	)
Income tax benefit related to items of other comprehensive income		518			535
Other comprehensive loss, net of tax		(1,922	)		(2,012	)

Net income attributable to noncontrolling interest		(41	)		(36	)

Comprehensive income/(loss) attributable to National HealthCare Corporation	$	19,345		$	(28,864	)

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

	March 31, 2020			December 31, 2019			March 31, 2021			December 31, 2020
	unaudited						unaudited
Assets
Current Assets:
Cash and cash equivalents	$	69,492		$	50,334		$	134,107		$	147,093
Restricted cash and cash equivalents, current portion		12,947			8,944			20,257			9,673
Marketable equity securities		92,061			152,453			135,246			128,590
Marketable debt securities								49,492			47,762
Restricted marketable equity securities								5,083			4,680
Restricted marketable debt securities, current portion		16,685			20,576			5,724			16,601
Accounts receivable		100,411			92,975			94,292			89,670
Inventories		7,904			7,441			8,117			8,781
Prepaid expenses and other assets		5,397			4,075			3,496			2,977
Notes receivable, current portion		1,785			1,695			8,804			928
Federal income tax receivable		-			2,560
Total current assets		306,682			341,053			464,618			456,755

Property and Equipment:
Property and equipment, at cost		1,032,795			1,017,204			1,034,747			1,030,426
Accumulated depreciation and amortization		(492,175	)		(481,774	)		(520,263	)		(510,108	)
Net property and equipment		540,620			535,430			514,484			520,318

Other Assets:
Restricted cash and cash equivalents, less current portion		1,741			1,732			1,727			1,736
Restricted marketable debt securities, less current portion		131,126			126,830			133,959			125,472
Deposits and other assets		5,897			5,124			4,661			4,580
Operating lease right-of-use assets		196,960			202,909			172,764			179,055
Goodwill		21,341			20,995			21,341			21,341
Notes receivable, less current portion		13,168			13,384			3,962			12,093
Investments in unconsolidated companies		38,772			39,191			37,796			40,782
Total other assets		409,005			410,165			376,210			385,059
Total assets	$	1,256,307		$	1,286,648		$	1,355,312		$	1,362,132

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

	March 31, 2020		December 31, 2019		March 31, 2021		December 31, 2020
	unaudited				unaudited
Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Equity
Current Liabilities:
Trade accounts payable	$	18,275	$	18,903	$	16,113	$	21,112
Finance lease obligations, current portion		4,228		4,166		4,489		4,423
Operating lease liabilities, current portion		24,557		24,243		25,759		25,451
Accrued payroll		48,892		69,826		64,406		86,183
Amounts due to third party payors		15,607		15,108		15,574		16,454
Accrued risk reserves, current portion		29,632		29,520		31,065		30,953
Other current liabilities		18,811		15,029		25,674		21,344
Provider relief funds						23,510		16,068
Contract liabilities						51,253		51,253
Dividends payable		7,980		7,968		8,003		7,987
Current maturities of long-term debt		50,000		10,000
Total current liabilities		217,982		194,763		265,846		281,228

Finance lease obligations, less current portion		13,882		14,963		9,393		10,540
Operating lease liabilities, less current portion		172,403		178,666		147,005		153,604
Accrued risk reserves, less current portion		71,130		66,491		70,416		68,584
Refundable entrance fees		7,455		7,455		7,334		7,462
Obligation to provide future services		2,035		2,035
Deferred income taxes		8,469		24,012		15,157		14,079
Other noncurrent liabilities		14,590		16,058		29,973		28,375
Deferred revenue		5,006		3,136
Total liabilities		512,952		507,579		545,124		563,872

Equity:
Common stock, $.01 par value; 45,000,000 shares authorized; 15,346,601 and 15,332,206 shares, respectively, issued and outstanding		153		153
Common stock, $.01 par value; 45,000,000 shares authorized; 15,390,140 and 15,369,745 shares, respectively, issued and outstanding						154		153
Capital in excess of par value		223,600		222,787		227,487		226,943
Retained earnings		518,261		553,093		576,288		563,024
Accumulated other comprehensive income		548		2,560		3,135		5,057
Total National HealthCare Corporation stockholders’ equity		742,562		778,593		807,064		795,177
Noncontrolling interest		793		476		3,124		3,083
Total equity		743,355		779,069		810,188		798,260
Total liabilities and equity	$	1,256,307	$	1,286,648	$	1,355,312	$	1,362,132

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

	Three Months Ended March 31						Three Months Ended March 31
	2020			2019			2021			2020
Cash Flows From Operating Activities:
Net income/(loss)	$	(26,816	)	$	21,231		$	21,308		$	(26,816	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,438			10,517			10,161			10,438
Equity in earnings of unconsolidated investments		(2,811	)		(2,321	)		(2,911	)		(2,811	)
Distributions from unconsolidated investments		2,349			31			5,897			2,349
Unrealized (gains)/losses on marketable equity securities		60,392			(6,838	)		(7,059	)		60,392
Gains on sale of restricted marketable debt securities		(2	)		-
Gain on acquisition of equity method investment		(1,707	)		-
Gains on sale of marketable debt securities								0			(2	)
Gains on acquisitions of equity method investments								0			(1,707	)
Deferred income taxes		(15,008	)		1,603			1,596			(15,008	)
Stock–based compensation		466			424			496			466
Changes in operating assets and liabilities:
Accounts receivable		(6,212	)		(3,345	)		(4,622	)		(6,212	)
Income tax receivable		2,560			-
Federal income tax receivable								0			2,560
Inventories		(372	)		517			664			(372	)
Prepaid expenses and other assets		(1,515	)		(1,008	)		(601	)		(1,515	)
Trade accounts payable		(1,408	)		(441	)		(4,999	)		(1,408	)
Accrued payroll		(21,343	)		(21,730	)		(21,777	)		(21,343	)
Amounts due to third party payors		353			185			(880	)		353
Accrued risk reserves		4,623			2,498			1,945			4,623
Provider relief funds								7,442			0
Other current liabilities		3,365			8,158			4,331			3,365
Other noncurrent liabilities		(1,468	)		102			1,598			402
Deferred revenue		1,870			2,018
Net cash provided by operating activities		7,754			11,601			12,589			7,754
Cash Flows From Investing Activities:
Additions to property and equipment		(6,628	)		(5,874	)
Purchases of property and equipment								(4,327	)		(6,628	)
Acquisition of equity method investment, net of cash acquired		(6,648	)		-			0			(6,648	)
Investments in unconsolidated companies								0			(125	)
Investments in notes receivable		(250	)		(312	)		0			(250	)
Investments in unconsolidated companies		(125	)		(125	)
Collections of notes receivable		376			353			255			376
Purchase of restricted marketable debt securities		(6,360	)		(3,565	)
Sale of restricted marketable debt securities		3,410			6,576
Purchases of marketable securities								(7,866	)		(6,360	)
Proceeds from sale of marketable securities								6,086			3,410
Net cash used in investing activities		(16,225	)		(2,947	)		(5,852	)		(16,225	)
Cash Flows From Financing Activities:
Borrowings under credit facility		40,000			-			0			40,000
Principal payments under finance lease obligations		(1,019	)		(959	)		(1,081	)		(1,019	)
Dividends paid to common stockholders		(7,968	)		(7,623	)		(7,988	)		(7,968	)
Noncontrolling interest contributions								0			281
Issuance of common shares		400			579			327			400
Repurchase of common shares		(53	)		(872	)		(278	)		(53	)
Equity contributed by noncontrolling entities		281			-
Net cash provided by (used in) financing activities		31,641			(8,875	)
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents		23,170			(221	)
Entrance fee refunds								(128	)		0
Net cash (used in)/provided by financing activities								(9,148	)		31,641
Net (Decrease)/Increase in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents								(2,411	)		23,170
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period		61,010			54,920			158,502			61,010
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period	$	84,180		$	54,699		$	156,091		$	84,180

Balance Sheet Classifications:
Cash and cash equivalents	$	69,492		$	38,194		$	134,107		$	69,492
Restricted cash and cash equivalents		14,688			16,505			21,984			14,688
Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	$	84,180		$	54,699		$	156,091		$	84,180

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

Interim Condensed Consolidated Statements of ~~Stockholders’~~Stockholders’ Equity

	Common Stock					Capital in Excess of			Retained Earnings			Accumulated Other Comprehensive			Non- controlling			Total Stockholders��			Common Stock					Capital in Excess of			Retained			Accumulated Other Comprehensive			Non- controlling		Total Stockholders’
	Shares			Amount		Par Value			Earnings			Income (Loss)			Interest			Equity			Shares			Amount		Par Value			Earnings			Income			Interest		Equity
Balance at January 1, 2019		15,255,002		$	153	$	219,435		$	516,435		$	(2,745	)	$	1,179		$	734,457
Net income attributable to National HealthCare Corporation		–			–		–			21,269			–			–			21,269
Net loss attributable to noncontrolling interest		–			–		–			–			–			(38	)		(38	)
Other comprehensive income		–			–		–			–			2,548			–			2,548
Stock–based compensation		–			–		424			–			–			–			424
Shares sold – options exercised		59,384			–		579			–			–			–			579
Repurchase of common shares		(10,396	)		–		(872	)		–			–			–			(872	)
Dividends declared to common stockholders ($0.50 per share)		–			–		–			(7,652	)		–			–			(7,652	)
Balance at March 31, 2019		15,303,990		$	153	$	219,566		$	530,052		$	(197	)	$	1,141			750,715

Balance at January 1, 2020		15,332,206		$	153	$	222,787		$	553,093		$	2,560		$	476		$	779,069			15,332,206		$	153	$	222,787		$	553,093		$	2,560		$	476	$	779,069
Net loss attributable to National HealthCare Corporation		–			–		–			(26,852	)		–			–			(26,852	)
Net income attributable to noncontrolling interest		–			–		–			–			–			36			36
Net income/(loss)																						–			–		–			(26,852	)		–			36		(26,816	)
Equity contributed by noncontrolling interest		–			–		–			–			–			281			281			–			–		–			–			–			281		281
Other comprehensive loss		–			–		–			–			(2,012	)		–			(2,012	)		–			–		–			–			(2,012	)		–		(2,012	)
Stock–based compensation		–			–		466			–			–			–			466			–			–		466			–			–			–		466
Shares sold – options exercised		15,006			–		400			–			–			–			400			15,006			0		400			–			–			–		400
Repurchase of common shares		(611	)		–		(53	)		–			–			–			(53	)		(611	)		–		(53	)		–			–			–		(53	)
Dividends declared to common stockholders ($0.52 per share)		–			–		–			(7,980	)		–			–			(7,980	)
Dividends declared to common stockholders ($0.52 per share)																						–			–		–			(7,980	)		–			–		(7,980	)
Balance at March 31, 2020		15,346,601		$	153	$	223,600		$	518,261		$	548		$	793			743,355			15,346,601		$	153	$	223,600		$	518,261		$	548		$	793		743,355

	Common Stock					Capital in Excess of			Retained			Accumulated Other Comprehensive			Non- controlling		Total Stockholders’
	Shares			Amount		Par Value			Earnings			Income			Interest		Equity
Balance at January 1, 2021		15,369,745		$	153	$	226,943		$	563,024		$	5,057		$	3,083	$	798,260
Net income		–			–		–			21,267			–			41		21,308
Other comprehensive loss		–			–		–			–			(1,922	)		–		(1,922	)
Stock–based compensation		–			–		496			–			–			–		496
Shares sold – options exercised		24,331			1		326			–			–			–		327
Repurchase of common shares		(3,936	)		–		(278	)		–			–			–		(278	)
Dividends declared to common stockholders ($0.52 per share)		-			–		-			(8,003	)		–			–		(8,003	)
Balance at March 31, 2021		15,390,140		$	154	$	227,487		$	576,288		$	3,135		$	3,124		810,188

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

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of March 31, ~~2020,~~2021, we operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of ~~9,513~~9,463 licensed beds, 2524 assisted living facilities, five independent living facilities, one behavioral health 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 and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.

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 U.S. generally accepted accounting principles (“GAAP”), 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, ~~2019~~2020 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, ~~2019~~2020 consolidated financial statements are available at our web site: www.nhccare.com.

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 financial statements have read or have access to the audited December 31, ~~2019~~2020 consolidated financial statements 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.

The preparation of financial statements in conformity with U.S. GAAP 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, including but not limited to, the potential future effects of the novel coronavirus (“COVID-19”).

In ~~June 2016,~~ ~~the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)~~ ~~No.~~~~2016~~-~~13,~~~~Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments~~~~. ASU~~ ~~No.~~~~2016~~-13 adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. This ASU is effective for fiscal years beginning after ~~December 15, 2019,~~ ~~including interim periods within those annual periods. The Company adopted the standard as of~~ ~~January 1, 2020.~~ ~~This standard did~~ ~~not~~ have a material impact on our interim condensed consolidated financial statements; however, we did update our processes specifically in how we monitor credit related declines in market value for our available for sale marketable debt securities.

On ~~December 18, 2019,~~ ~~the FASB issued ASU~~ ~~No.~~~~2019~~-~~12,~~~~Income Taxes (Topic~~ ~~740~~~~): Simplifying the Accounting for Income Taxe~~s. This ASU is part of the FASB’s overall simplification initiative to reduce the costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. This ASU removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU ~~No.~~~~2019~~-12 ~~is effective for reporting periods beginning after~~ ~~December 15, 2020,~~ ~~with early adoption permitted. On~~ ~~January 1, 2020,~~ ~~the Company early adopted the provisions of ASU~~ ~~No.~~~~2019~~-~~12.~~ ~~This standard did~~ ~~not~~ ~~have a material impact on our interim condensed consolidated financial statements.~~

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 recognizes revenue as its performance obligations are completed. Routine services are treated as a single performance obligation satisfied over time as services are rendered. These routine services represent a bundle of services that are not capable of being distinct. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time when those services are rendered.

Contract liabilities are recorded for payments the Company receives in which performance obligations have not been completed.

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. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. Bad debt expense was ~~$830,000~~$919,000 and ~~$1,047,000~~$830,000 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. As of March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, the Company has recorded allowance for doubtful accounts of ~~$4,929,000~~$6,268,000 and ~~$4,451,000,~~$5,672,000, respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

Other revenues include revenues from the provision of insurance services, management and accounting services to other long–term care providers, and rental income. Our insurance revenues consist of premiums that are generally paid in advance and then amortized into income over the policy period. We charge for management services based on a percentage of net revenues. We charge for accounting services based on a monthly fee or a fixed fee per bed of the healthcare center under contract. We record other revenues as the performance obligations are satisfied based on the terms of our contractual arrangements.

We recognize rental income based on the terms of our operating leases. Under certain of our leases, we receive variable rent, which is based on the increase in revenues of a lessee over a base year. We recognize variable rent annually or monthly, as applicable, when, based on the actual revenue of the lessee is earned.

In the absence of specific guidance to account for government grants under U.S. GAAP, we have concluded to account for government grants in accordance with International Accounting Standard (“IAS”) 20,Accounting for Government Grants and Disclosure of Government Assistance, and as such, we recognize grant income on a systematic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate.

In accordance with the provisions of Accounting Standards Codification ("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, assisted and independent living facilities, and one behavioral health hospital, 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 67 for further disclosure of the Company’s operating segments.

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.

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 ~~$3,059,000~~$5,369,000 and ~~$1,813,000~~$5,498,000 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

The Company’s lease portfolio primarily consists of finance and operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare offices, and pharmacy warehouses. The original terms of the leases typically range from two to fifteen years. Several of the real estate leases include renewal options which vary in length and may not include specific rent renewal amounts. We determine if an arrangement is a lease at inception of a contract. We determine the lease term by assuming exercise of renewal options that are reasonably certain.

The Company records right-of-use assets and liabilities on the interim condensed consolidated balance sheets for non-cancelable real estate operating leases with original or remaining lease terms in excess of one year. Leases with a lease term of 12 months or less at inception are not recorded on our interim condensed consolidated balance sheets and are expensed on a straight-line basis over the lease term in our interim condensed consolidated ~~statement~~statements of operations. We recognize lease components and non-lease components together and not as separate parts of a lease for real estate leases.

Operating lease right-of-use assets and liabilities are recorded at the present value of the lease payments over the lease term. The present value of the lease payments are discounted using the incremental borrowing rate associated with each lease. The variable components of the lease payment that fluctuate with the operations of a health facility are not included in determining the right-of-use assets and lease liabilities. Rather, these variable components are expensed as incurred.

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.

Finance leases are recorded at cost. Finance leases are amortized in accordance with the provision codified within ASC 842, Leases. Amortization of finance lease assets is included in depreciation and amortization expense.

We perform our annual goodwill impairment assessment on the first day of the fourth quarter. At March 31, ~~2020,~~2021, the Company reviewed the carrying value of goodwill for impairment indicators, including due to the events and circumstances surrounding the Coronavirus Pandemic ("COVID-1919" ~~pandemic.~~). As a result of the review, there were no impairment indicators regarding the Company’s goodwill during the three months ended March 31, ~~2020~~2021 that required a quantitative test to be performed. However, our accounting estimates could materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses.

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. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims 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.

We have one continuing care retirement center (“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 value 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 actuarily 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~~noncurrent liabilities insection of our consolidated balance sheets. As of March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, we have recorded a refundable entrance ~~fee~~fees in the amount of ~~$7,455,000~~.

~~Obligation to Provide Future Services~~$7,334,000 and $7,462,000, respectively.

We also 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 March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, we have recorded a future service obligation liability in the amount of $~~2,035,000.~~2,177,000.

This obligation is reflected within other noncurrent liabilities in the interim condensed consolidated balance sheets.

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

positions, deferred revenue, and obligations to provide future services to our CCRC residents. Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”), and 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 in which the performance obligations have~~ ~~not~~ ~~been satisfied.~~residents.

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 the subsidiary earnings, ~~based on ownership interest.~~contributions, and distributions.

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~~have 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.

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

In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. The COVID-19 virus spread rapidly, with every state in the United States (“U.S.”) having confirmed cases. The rapid spread resulted in authorities around the U.S. implementing various measures to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns. The pandemic and these containment measures had an adverse impact on the Company's results of operations in 2020 and for the three months ended March 31, 2021. For the first time since the beginning of the COVID-19 pandemic, the census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through March 31, 2021. We began our first vaccination clinics in our skilled nursing facilities around the middle of December 2020. As of March 31, 2021, each of our 75 skilled nursing facilities had hosted at least three vaccination clinics onsite for our patients and partners (employees). As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations.

The U.S. government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. The new laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective is the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Through the CARES Act, as well as the Paycheck Protection Program and Health Care Enhancement Act ("PPPCHE"), the federal government has allocated $178 billion to the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.

During the three months ending March 31, 2021, we received additional disbursements from the Provider Relief Fund which totaled $30,191,000. These funds come with terms and condition certifications in which all providers are required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded $22,749,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 2021. The grant income was determined on a systemic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by the U.S. Department of Health and Human Services (“HHS”).

As of March 31, 2021, amounts not recognized as income are $23,510,000 and are reflected in the current liability section of our interim condensed consolidated balance sheet (provider relief funds). We anticipate incurring additional COVID-19 related expenses or lost revenues in the future; therefore, at this time, we believe that we will fully utilize the remaining $23,510,000 of provider relief funds before the reporting requirement deadlines outlined by HHS.

Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program. The expanded Medicare Accelerated and Advance Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received approximately $51,253,000 as part of this program. These funds will begin to be applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. During the firsteleven months after repayment begins, repayment will occur through an automatic recoupment of twenty-five percent of Medicare payments. During the succeeding six months, repayment will occur through an automatic recoupment of fifty percent of Medicare payments. Any remaining balance that was not paid through the recoupment process within twenty-nine months of receipt of the funds will be required to be paid on-demand, subject to an interest rate of four percent. Recoupment of the accelerated payments began in the second quarter of 2021. As of March 31, 2021, the accelerated payments are reflected within contract liabilities in the interim condensed consolidated balance sheet as the related performance obligations have not been completed.

The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through December 31, 2020. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. On December 27, 2020, the Consolidated Appropriations Act of 2021 further suspended the 2.0% payment adjustment through March 31, 2021. On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.

The CARES Act also temporarily permitted employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would be due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. At March 31, 2021, we have deferred $21,153,000 of the Company’s share of the social security taxes. At March 31, 2021, half of the payroll tax deferral is included in accrued payroll in the current liabilities section of the consolidated balance sheet and the other half of the payroll tax deferral is included in other noncurrent liabilities within our consolidated balance sheet.

We have also received from many of the states in which we operate a supplemental Medicaid payment to help mitigate the incremental costs resulting from the COVID-19 public health emergency. For the three months ended March 31, 2021, we have recorded $3,955,000 in net patient revenues in our interim condensed consolidated statements of operations for these supplemental Medicaid payments.

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

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.~~services (in thousands).

	Three Months Ended March 31				Three Months Ended March 31
	2020		2019		2021		2020
Net patient revenues:
Inpatient services	$	230,987	$	221,635	$	203,242	$	230,987
Homecare		13,108		14,476		13,613		13,108
Total net patient revenue	$	244,095	$	236,111	$	216,855	$	244,095

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~~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.

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 March 31				Three Months Ended March 31
Source	2020		2019		2021		2020
Medicare		34%		36%		35%		34%
Managed Care		11%		12%		12%		11%
Medicaid		29%		26%		29%		29%
Private Pay and Other		26%		26%		24%		26%
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 ~~episodes~~periods of care. ~~An episode~~A period of care is defined as a length of care up to 30 days with multiple continuous ~~episodes~~periods 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.

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 ~~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.

Included in the Company’s interim condensed consolidated balance sheets are contract liabilities, which represent payments the Company receives in advance of services provided. As of March 31, 2021 and December 31, 2020, the Company has recorded $51,253,000 in contract liabilities related to receipts from the Medicare Accelerated and Advance Payment Program. Recoupment of the accelerated payments began in the second quarter of 2021.

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 ~~$15,607,000~~$15,574,000 and ~~$15,108,000~~$16,454,000 as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

Other revenues are outlined in the table below. 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 include fees provided to manage and provide accounting services to other healthcare operators. Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly–owned insurance subsidiaries have written for certain healthcare operators to which we provide management or accounting services. "Other" revenues include miscellaneous health care related ~~earnings.~~earnings (in thousands).

	Three Months Ended March 31				Three Months Ended March 31
(in thousands)	2020		2019
					2021		2020
Rental income	$	5,679	$	5,608	$	5,647	$	5,679
Management and accounting services fees		4,478		4,751		4,324		4,478
Insurance services		1,382		1,524		1,264		1,382
Other		490		291		134		490
Total other revenues	$	12,029	$	12,174	$	11,369	$	12,029

The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators. Additionally, we sublease four Florida skilled nursing facilities included in our lease from National Health Investors (“NHI”) as noted in Note 78 – Long Term Leases. Rental income reflected in the interim condensed consolidated statements of operations consisted of the ~~following:~~following (in thousands):

We manage five skilled nursing facilities owned by National. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, we recognized management fees and interest on management fees of ~~$1,537,000~~$896,000 and ~~$1,854,000~~$1,537,000 from these centers, respectively.

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 were ~~$779,000~~$753,000 and ~~$847,000,~~$779,000, respectively. 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 ended March 31, ~~2020~~2021 and ~~2019~~2020 were ~~$603,000~~$511,000 and ~~$677,000,~~$603,000, 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".

Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on sales of marketable securities, and interest ~~income.~~ income (in thousands).

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. The carrying value of our investment is $35,480,000 and $38,916,000 at March 31, 2021 and December 31, 2020, respectively. The carrying amounts are included in investments in unconsolidated companies in the consolidated balance sheets. Summarized financial information of Caris for the three months ended March 31, 2021 and 2020 is provided below (in thousands):

~~Gain~~Gains on ~~Acquisition~~Acquisitions of Equity Method ~~Investment~~Investments

Effective February 27, 2020, the Company expanded its controlled operations through an acquisition of the remaining ownership interest of a 166-bed skilled nursing facility in Knoxville, Tennessee. We previously held a 25% noncontrolling interest in the facility and accounted for the investment as an equity method investment. The operating results of the business have been included in the accompanying interim condensed consolidated financial statements since the remaining ownership interest acquisition date.

Upon acquiring the remaining ownership interest, the Company recorded and increased its previously held equity interest up to fair value as of the acquisition date. This remeasurement of our equity interest at fair value resulted in a gain of $1,707,000. The gain was recorded in "Non-operating income" in the interim condensed consolidated ~~statement~~statements of operations.~~Additionally, the excess~~

The Company has 2two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our behavioral health hospital; and (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 March 31, 2020										Three Months Ended March 31, 2021
	Inpatient Services		Homecare		All Other			Total			Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	230,987	$	13,108	$	-		$	244,095		$	203,242	$	13,613	$	0		$	216,855
Other revenues		435		-		11,594			12,029			98		0		11,271			11,369
Net operating revenues		231,422		13,108		11,594			256,124
Government stimulus income												22,749		0		0			22,749
Net operating revenues and grant income												226,089		13,613		11,271			250,973

Costs and expenses:
Salaries, wages and benefits		135,215		8,316		3,938			147,469
Salaries, wages, and benefits												128,809		8,408		7,913			145,130
Other operating		65,105		3,819		2,744			71,668			64,810		2,942		2,401			70,153
Rent		8,378		457		1,497			10,332			8,194		431		1,438			10,063
Depreciation and amortization		9,571		54		813			10,438			9,263		87		811			10,161
Interest		382		-		30			412			244		0		0			244
Total costs and expenses		218,651		12,646		9,022			240,319			211,320		11,868		12,563			235,751

Income from operations		12,771		462		2,572			15,805
Income/(loss) from operations												14,769		1,745		(1,292	)		15,222
Non-operating income												0		0		6,260			6,260
Unrealized gains on marketable equity securities												0		0		7,059			7,059

Non-operating income		-		-		8,146			8,146
Unrealized losses on marketable equity securities		-		-		(60,392	)		(60,392	)

Income/(loss) before income taxes	$	12,771	$	462	$	(49,674	)	$	(36,441	)
Income before income taxes											$	14,769	$	1,745	$	12,027		$	28,541

At March 31, ~~2020,~~2021, we leased from NHI the real property of 35 skilled nursing facilities, seven assisted living centers and three independent living centers under two separate lease agreements. As part of the first lease agreement, we sublease four Florida skilled nursing facilities to a third-party operator. Base rent expense under both NHI lease agreements totals $34,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over a base year. Total facility rent expense to NHI was ~~$9,655,000~~$9,411,000 and ~~$9,515,000~~$9,655,000 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

At March 31, ~~2020,~~2021, we leased and operated three senior healthcare facilities in the state of Missouri under three separate lease agreements. Two of the healthcare facilities are skilled nursing facilities that also include assisted living facilities and the third healthcare facility is a memory care facility. Each of the leases is a ten-year lease with two five–year renewal options. Under the terms of the leases, base rent totals $5,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over the 2014 base year.

The following table summarizes the maturity of our finance and operating lease liabilities as of March 31, ~~2020~~2021 (in thousands):

	Finance Leases			Operating Leases			Finance Leases			Operating Leases
2020	$	5,200		$	35,495
2021		5,200			35,169
2022		5,200			34,748		$	5,200		$	35,224
2023		4,766			34,430			5,200			34,855
2024		-			34,279			4,767			34,554
2025								0			34,370
2026								0			34,233
Thereafter		-			65,600			0			31,400
Total minimum lease payments		20,366			239,721			15,167			204,636
Less: amounts representing interest		(2,256	)		(42,761	)		(1,285	)		(31,872	)
Present value of future minimum lease payments		18,110			196,960			13,882			172,764
Less: current portion		(4,228	)		(24,557	)		(4,489	)		(25,759	)
Noncurrent lease liabilities	$	13,882		$	172,403		$	9,393		$	147,005

Basic net income ~~(loss)~~ per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income ~~(loss)~~ 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 ~~(losses)~~ and the weighted average number of common shares used in the calculation of basic and diluted earnings ~~(loss)~~ per share (in thousands, except for share and per share amounts):

	Three Months Ended March 31					Three Months Ended March 31
	2020			2019		2021		2020
Basic:
Weighted average common shares outstanding		15,294,777			15,256,189		15,327,520		15,294,777
Net income/(loss) attributable to National HealthCare Corporation	$	(26,852	)	$	21,269	$	21,267	$	(26,852	)
Earnings/(loss) per common share, basic	$	(1.76	)	$	1.39	$	1.39	$	(1.76	)

Diluted:
Weighted average common shares outstanding		15,294,777			15,256,189		15,327,520		15,294,777
Effects of dilutive instruments		-			67,936		62,556		0
Weighted average common shares outstanding		15,294,777			15,324,125		15,390,076		15,294,777

Net income/(loss) attributable to National HealthCare Corporation	$	(26,852	)	$	21,269	$	21,267	$	(26,852	)
Earnings/(loss) per common share, diluted	$	(1.76	)	$	1.39	$	1.38	$	(1.76	)

~~The impact of potentially dilutive securities (652,208) for~~In the ~~three~~ ~~months ended~~ ~~March 31, 2020~~ ~~were~~ ~~not~~ ~~considered because the effect would be anti-dilutive in that period. Options~~above table, options to purchase ~~8,475~~634,780 shares of our common stock have been excluded for the ~~quarter~~three months ended March 31, ~~2019~~2021 due to their ~~anti–dilutive~~anti-dilutive impact.

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. Any credit related decline in fair market values of our available for sale debt securities are recorded in our results of operations through an allowance for credit losses. 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 1011 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):

	March 31, 2020				December 31, 2019				March 31, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investments available for sale:
Marketable equity securities	$	30,176	$	92,061	$	30,176	$	152,453	$	30,176	$	135,246	$	30,176	$	128,590
Corporate debt securities										26,540		26,420		25,812		25,778
Asset-backed securities										3,961		3,949		2,485		2,480
U.S. Treasury securities										19,148		19,123		19,519		19,504
Restricted investments available for sale:
Marketable equity securities										4,783		5,083		4,783		4,680
Corporate debt securities		66,599		67,151		63,414		65,653		63,907		67,205		61,709		66,247
Asset-based securities		54,273		53,465		54,451		55,185		38,156		39,140		40,655		41,769
U.S. Treasury securities		13,372		14,130		13,379		13,410		22,723		22,241		20,760		21,159
State and municipal securities		12,873		13,065		12,922		13,158		10,782		11,097		12,497		12,898
	$	177,293	$	239,872	$	174,342	$	299,859	$	220,176	$	329,504	$	218,396		323,105

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

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

	March 31, 2020				December 31, 2019				March 31, 2021				December 31, 2020
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Maturities:
Within 1 year	$	14,754	$	14,600	$	15,726	$	15,767	$	50,615	$	50,855	$	49,694	$	49,863
1 to 5 years		94,416		94,603		88,314		90,408		98,320		101,326		99,143		103,002
6 to 10 years		37,947		38,608		40,126		41,231		36,282		36,994		34,326		36,685
Over 10 years		-		-		-		-		0		0		274		285
	$	147,117	$	147,811	$	144,166	$	147,406	$	185,217	$	189,175	$	183,437	$	189,835

Gross unrealized gains related to marketable equity securities are ~~$62,244,000~~$105,464,000 and ~~$122,290,000~~$98,445,000 as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Gross unrealized losses related to marketable equity securities are ~~$359,000~~$94,000 and ~~$13,000~~$134,000 as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, the Company recognized a net unrealized ~~losses~~gain of ~~$60,392,000~~$7,059,000 and a net unrealized ~~gains~~loss of ~~$6,838,000,~~$60,392,000, respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated ~~statement~~statements of operations.

Gross unrealized gains related to available for sale marketable debt securities are ~~$3,024,000~~$4,973,000 and ~~$3,407,000~~$6,759,000 as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Gross unrealized losses related to available for sale marketable debt securities are ~~$2,330,000~~$1,015,000 and ~~$167,000~~$361,000 as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related.

The Company has notrecognized any credit related impairments for the three months ending March 31, ~~2020~~2021 and ~~2019.~~2020.

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.

Proceeds from the sale of available for sale marketable debt securities during the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 were $6,086,000 and $3,410,000, respectively. No investment gains were reported on these sales during the three months ended March 31, 2021 and ~~$6,576,000, respectively. Investment~~$2,000 of investment gains ~~of $2,000 and $-0-~~ were realized on these sales during the three months ended March 31, ~~2020~~2020. ~~and~~ ~~2019,~~ ~~respectively.~~ NaN sales were reported for marketable equity securities for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

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:

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 March 31, ~~2020~~2021 and December 31, ~~2019~~2020 for assets and liabilities measured at fair value on a recurring basis (in thousands):

~~As of~~ ~~March 31, 2020,~~ ~~the available borrowing capacity for the credit facility is $10 million. The credit facility has a maturity date of~~ ~~October 2020.~~ ~~Loans bear interest at either (i) LIBOR plus 1.40% or (ii) the base rate plus 0.40%.~~

In ~~August 2019,~~ ~~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.~~ During the ~~quarter~~three months ended March 31, ~~2020,~~2021, the Company repurchased ~~611~~3,936 shares of its common stock for a total cost of ~~$53,000.~~$278,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

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 ~~$466,000~~$496,000 and ~~$424,000~~$466,000 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

At March 31, ~~2020,~~2021, the Company had ~~$4,077,000~~$2,637,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate two-year period.

The following table summarizes the significant assumptions used to value the options granted for the three months ended March 31, ~~2020~~2021 and for the year ended December 31, ~~2019.~~2020.

	March 31, 2020		December 31, 2019		March 31, 2021		December 31, 2020
Risk–free interest rate		1.40%		2.30%		0.10%		0.87%
Expected volatility		16.6%		17.4%		44.74%		20.1%
Expected life, in years		1.9		2.3		1.0		2.2
Expected dividend yield		2.55%		2.73%		3.15%		2.91%

The following table summarizes our outstanding stock options for the three months ended March 31, ~~2020~~2021 and for the year ended December 31, ~~2019.~~2020.

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2019		1,163,381		$	71.16	$	–
Options outstanding at January 1, 2020									809,529		$	71.24	$	–
Options granted		53,316			77.89		–		104,057			73.98		–
Options exercised		(346,168	)		71.57		–		(43,630	)		63.37		–
Options cancelled		(85,000	)		72.94		–		(3,000	)		72.94		–
Options outstanding at December 31, 2019		785,529			71.24		–
Options outstanding at December 31, 2020									866,956			72.11		–
Options granted		57,313			84.46		–		10,704			67.28		–
Options exercised		(7,615	)		65.37		–		(115,900	)		70.01		–
Options outstanding at March 31, 2020		835,227		$	72.20	$	1,331,000
Options cancelled									(6,000	)		72.94		–
Options outstanding at March 31, 2021									755,760		$	72.36	$	4,541,600

Options exercisable at March 31, 2020		196,414		$	68.31	$	1,001,000
Options exercisable at March 31, 2021									210,686		$	68.35	$	767,000

The Company's income tax ~~benefit~~provision as a percentage of our income before income taxes was 25.3% and 26.4% for the three months ended March 31, 2021 and 2020,~~is $(9,625,000) (an effective~~ respectively.

Typically, these percentages vary from the U.S. federal statutory income tax rate of ~~26.4%). The~~21% primarily due to state income taxes, excess tax ~~provision~~benefits from stock-based compensation, benefits resulting from the lapsing of statute of limitations of items in our tax contingency reserve, and ~~effective tax rate for~~non-deductible expenses. For the three months ended March 31, 2021 and 2020,~~were unfavorably impacted by adjustments to unrecognized tax benefits~~ the accrual of ~~$205,000. The~~state income taxes was the only significant reconciling item.

Our quarterly income tax provision, ~~for the~~ ~~three~~ ~~months ended~~ ~~March 31, 2020~~ ~~resulted in an overall tax benefit due to an overall pre-tax book loss resulting from the unrealized loss~~and our estimate of ~~$60,392,000 for the market value decrease in~~ our ~~marketable equity securities portfolio.~~

~~The income tax provision for the~~ ~~three~~ ~~months ended~~ ~~March 31, 2019~~ ~~was $7,392,000 (an~~annual effective income tax rate, is subject to variation due to several factors, including volatility based on the amount of ~~25.8%). The~~pre-tax income ~~tax provision and effective tax rate for the~~ ~~three~~ ~~months ended~~ ~~March 31, 2019~~ ~~were unfavorably impacted by adjustments to unrecognized tax benefits of $200,000 but was favorably impacted by a tax benefit of $228,000 relating to the exercise of stock options.~~

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

The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before ~~2016~~2017 (with certain state exceptions).

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 and 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 ~~$100,762,000~~$101,481,000 and ~~$96,011,000~~$99,537,000 at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, 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.

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~~

General and Professional Liability ~~Lawsuits~~Insurance and ~~Insurance~~Lawsuits

The senior care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards.

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 ~~2019~~ ~~and~~ ~~2020,~~ ~~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.

which, based upon information available to date, would be material to our financial position, results of operations, or cash flows. 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~~addition, the long–term care industry is continuously subject to ~~time. The maximum loan commitment under the line of credit is $2,000,000. At~~ ~~March 31, 2020,~~ ~~National did~~ ~~not~~ ~~have an outstanding balance on the line of credit.~~

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~~scrutiny by governmental regulators, which could result 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~~litigation or claims related to ~~the NDC for dispensed prescriptions. The plaintiffs were seeking unspecified damages. On~~ ~~April 16, 2018,~~ ~~the United States filed a Notice of Election to Decline Intervention with respect to the allegations asserted in this action. On~~ ~~March 14, 2020,~~ ~~the Court entered an Order granting the Defendant’s Motion to Dismiss.~~regulatory compliance matters.

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following 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. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

On ~~March 27, 2020,~~ ~~the United States government passed the Coronavirus Aid, Relief, and Economic Security Act, (the “CARES Act”), which provided~~ ~~$2.2~~ trillion of economy-wide financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states and municipalities. Within the CARES Act, the legislation set aside under Title VIII in Division B the ~~Public Health and Social Services Emergency Fund~~~~, which is referred to as the Provider Relief Fund. This Provider Relief Fund set aside~~ ~~$100~~ billion to be administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, public entities, non-for-profit entities, and Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-~~19.~~

In ~~April 2020,~~ ~~we received~~ ~~two~~ disbursements from the Provider Relief Fund which totaled $19,468,000. These funds come with terms and condition certifications in which all providers will be required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID-~~19.~~ ~~These funds are~~ ~~not~~ ~~reflected in our~~ ~~first~~ ~~quarter~~ ~~2020~~ ~~interim condensed consolidated financial statements.~~

In ~~April 2020,~~ ~~the Company also submitted requests and received funding as part of the Centers for Medicare and Medicaid Services (“CMS”) COVID-~~19 ~~Accelerated Payment Program. The CMS COVID-~~19 ~~Accelerated Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to~~ ~~three~~ months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received $50,744,000 as part of this Medicare Accelerated 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 Program proceeds will be repaid within~~ ~~210~~ ~~days from the~~ ~~April 2020~~ ~~receipt of the funds.~~

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:

See the notes to the quarterly financial statements, and “Item 1. Business” in our ~~2019~~2020 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 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.

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. We operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of ~~9,513~~9,463 licensed beds, 2524 assisted living facilities, five independent living facilities, one behavioral health 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 and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.

In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. The COVID-19 virus ~~has~~ spread rapidly, with every state in the United States (“U.S.”) having confirmed cases. The rapid spread ~~has~~ resulted in authorities around the U.S. implementing various measures to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns. ~~The pandemic~~As a provider of healthcare services, we are significantly exposed to the public health and ~~these containment measures have had, and are expected to continue to have, a substantial negative impact on most businesses.~~

the COVID-19 pandemic. NHC’s primary objective has remained the same throughout the COVID-19 pandemic: that is to protect the health and safety of our patients, residents, and partners (employees). We continue to follow all guidance from the Centers for Medicare and Medicaid Services (“CMS”), the Centers for Disease Control and Prevention (“CDC”), and state and local health departments to prevent the spread of the disease within our operations.

The financial results for the three months ~~ended~~ending March 31, ~~2020 were not significantly~~2021 have been materially impacted by COVID-19 ~~due to the virus not impacting the first two months of 2020. Although~~with census in our ~~census was strong for most of~~skilled nursing facilities averaging 76.8% during the first quarter of ~~2020,~~2021 compared with 91.4% for the three months ending March 31, 2020. For the first time since the beginning of the COVID-19 pandemic, the census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through March 31, 2021. We began our first vaccination clinics in our skilled nursing facilities around the middle of December 2020. As of March 31, 2021, each of our 75 skilled nursing facilities have hosted at least three vaccination clinics onsite for our patients and partners (employees). As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations. Despite the COVID-19 cases significantly declining during the ~~second half~~first quarter of ~~March,~~2021, our ~~census began to decline due to the lack of new admissions from our acute care providers and referral partners. Our~~ operating expenses ~~also increased~~remained elevated with incentive compensation being paid to our frontline partners, as well as increased costs of ~~nursing supplies,~~ personal protective equipment (“PPE”), sanitizers and cleaning supplies, and ~~food~~COVID-19 testing of our patients and dietary products. Besides the incentive compensation being paid to our tireless partners on the frontlines, we continue to take every possible action to support our partners with free meals on their shifts, a one-month health insurance premium holiday in April, as well as extended paid sick leave days. All of the operational trends that impacted the second half of March have continued to impact operations in the months of April and the beginning of May.partners. Despite COVID-19 ~~impacting~~disrupting operations, our capital and financial resources, including our overall liquidity, remain strong. Our liquidity ~~and low debt levels provide~~provides us with significant flexibility to maintain the strength of our balance sheet in periods of uncertainty or stress.

At this time, we are not able to quantify the impact that the COVID-19 pandemic will have on our future financial results, but we expect the developments related to COVID-19 to adversely affect our financial performance in 2021. The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic, the volume of acute and post-acute healthcare patients cared for across the broader health care systems, the timing and availability of effective medical treatments and vaccines, and the impact of government actions and administrative regulations on our industry and broader economy, including future government stimulus efforts. We have received and may continue to receive payments and advances from the various federal and state initiatives. These legislative initiatives have been beneficial to partially mitigate the impact of the COVID-19 pandemic on our results of operations and financial position to date. The federal and state governments may consider additional stimulus and relief efforts, but we are unable to predict whether any of the additional stimulus measures will be enacted or their impact.

The U.S. government ~~has passed four new~~enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. ~~Although all four of the~~The new laws ~~impact~~impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective is the ~~CARES~~Coronavirus Aid, Relief, and Economic Security Act ~~which provided $2.2 trillion of economy-wide financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states and municipalities. Within~~(the "CARES Act"). Through the CARES Act, as well as the ~~legislation set aside under Title VIII in Division B~~Paycheck Protection Program and Health Care Enhancement Act ("PPPCHE"), the federal government has allocated $178 billion to the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. ~~This~~The Provider Relief Fund ~~set aside $100 billion to be~~is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.

~~In April 2020,~~During the three months ending March 31, 2021, we received ~~two~~additional disbursements from the Provider Relief Fund which totaled ~~$19,468,000.~~$30,191,000. These funds come with terms and condition certifications in which all providers ~~will be~~are required to submit documents to ensure the funds ~~were~~will be used for healthcare-related expenses or lost revenue attributable to COVID-19. ~~These funds~~The Company recorded $22,749,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 2021. The grant income was determined on a systemic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by the U.S. Department of Health and Human Services (“HHS”).

As of March 31, 2021, amounts not recognized as income are $23,510,000 and are reflected in the current liability section of our ~~first quarter 2020~~ interim condensed consolidated ~~financial statements.~~balance sheet (provider relief funds). We anticipate incurring additional COVID-19 related expenses or lost revenues in the future; therefore, at this time, we believe that we will fully utilize the remaining $23,510,000 of provider relief funds before the reporting requirement deadlines outlined by HHS.

Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program. The expanded Medicare Accelerated and Advance Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received approximately $51,253,000 as part of this program. These funds will begin to be applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. During the first eleven months after repayment begins, repayment will occur through an automatic recoupment of twenty-five percent of Medicare payments. During the succeeding six months, repayment will occur through an automatic recoupment of fifty percent of Medicare payments. Any remaining balance that was not paid through the recoupment process within twenty-nine months of receipt of the funds will be required to be paid on-demand, subject to an interest rate of four percent. Recoupment of the accelerated payments began in the second quarter of 2021. As of March 31, 2021, the accelerated payments are reflected within contract liabilities in the interim condensed consolidated balance sheet as the related performance obligations have not been completed.

The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through December 31, 2020. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. ~~The CARES~~On December 27, 2020, the Consolidated Appropriations Act ~~extends~~of 2021 further suspended the 2.0% payment adjustment through March 31, 2021. On April 14, 2021, Congress extended the Medicare sequestration ~~policy through 2030 in exchange for this temporary suspension. We expect our net patient revenues~~suspension period to ~~increase by approximately $2,700,000 in 2020 (2~~^nd~~, 3~~^rd~~, and 4~~^th ~~quarter impact) due to sequestration being temporarily suspended for the eight-month period.~~December 31, 2021.

The CARES Act also temporarily ~~permits~~permitted employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would be due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. ~~Currently,~~At March 31, 2021, we expect the deferral of these payroll taxes to improve our liquidity and cash available for operations during 2020 by approximately $21 million to $26 million, or $7 million to $8.5 million per quarter (2^nd~~, 3~~^rd~~, and 4~~^th ~~quarter impact).~~

~~In April 2020, the Company also submitted requests and received funding as part~~have deferred $21,153,000 of the CMS COVID-19 Accelerated Payment Program. The CMS COVID-19 Accelerated Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received $50,744,000 as part of this Medicare Accelerated 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 Program proceeds will be repaid within 210 days from the April 2020 receiptCompany’s share of the ~~funds.~~

~~On April 24, 2020,~~social security taxes. At March 31, 2021, half of the ~~fourth~~payroll tax deferral is included in accrued payroll in the current liabilities section of the consolidated balance sheet and ~~most recent Federal legislation (~~~~Paycheck Protection Program and Health Care Enactment Act~~~~) was passed that provided an additional $484 billion for COVID-19 relief, focusing primarily on health care and small businesses. This legislation adds an additional $75 billion~~the other half of the payroll tax deferral is included in funding to the Provider Relief Fund, adding to the original $100 billion from the CARES Act. At this time, we do not have any insight into how these additional funds will be distributed from the Provider Relief Fund.other noncurrent liabilities within our consolidated balance sheet.

We have also received ~~notification~~ from many of the states in which we operate ~~that~~ a supplemental Medicaid payment ~~is being provided~~ to help mitigate the incremental costs resulting from the COVID-19 public health emergency. ~~At this time,~~For the three months ended March 31, 2021, we ~~expect our~~have recorded $3,955,000 in net patient revenues ~~to increase by approximately $7,000,000~~ in ~~2020 due to~~our interim condensed consolidated statements of operations for these supplemental Medicaid ~~payments, of which $1,675,000 was recorded in our first quarter 2020 interim condensed consolidated statement of income.~~payments.

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 three months ending March 31, ~~2020~~2021 was ~~91.4%~~76.8% compared to ~~90.2%~~91.4% for the same period a year ago. ~~Although our census was strong for most~~For the first time since the beginning of the ~~first quarter of 2020, during~~COVID-19 pandemic, the ~~second half of~~census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through March ~~our census began to decline due to COVID-19 and the lack of new admissions from our acute care providers and referral partners.~~31, 2021.

~~With~~Due to the ~~average length of stay decreasing for a skilled nursing patient,~~pandemic, 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.

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 ranging 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 tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of March 31, ~~2020:~~2021:

	NHC Ratings		Industry Ratings		NHC Ratings		Industry Ratings
Total number of skilled nursing facilities, end of period		75				75
Number of 4 and 5-star rated skilled nursing facilities		54				59
Percentage of 4 and 5-star rated skilled nursing facilities		72%		44%		79%		49%
Average rating for all skilled nursing facilities, end of period		3.99		3.12		4.14		3.27

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

Our accrued professional liability and workers’ compensation reserves totaled ~~$100,762,000~~$101,481,000 at March 31, ~~2020~~2021 and are a primary area of management focus. We have set aside restricted cash and cash equivalents and 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.

InOn July ~~2019,~~31, 2020, CMS released its final rule outlining fiscal year ~~2020~~2021 Medicare payment rates and policy changes for skilled nursing facilities, which began October 1, ~~2019.~~2020. The fiscal year ~~2020~~2021 final rule provided for an approximate ~~net 2.4%~~2.2% increase, or ~~$851~~$750 million, compared to fiscal year ~~2019~~2020 levels. ~~This included a 2.8% market-basket update, offset by a statutorily required 0.4% productivity reduction.~~The final rule continues to reflect the commitment to shifting Medicare payments from volume to value, with the continued implementation of PDPM and value-based purchasing to improve interoperability, operational quality, and safety.

On April 8, 2021, CMS released a proposed rule outlining fiscal year 2022 Medicare payment rates and policy changes for skilled nursing facilities, which would begin October 1, 2021. The fiscal year 2022 proposed rule provided for an approximate 1.3% increase, or $444 million, compared to 2021 levels.

For the first three months of ~~2020,~~2021, our average Medicare per diem rate for skilled nursing facilities increased ~~9.7%~~6.3% as compared to the same period in ~~2019.~~2020.

Effective July 1, ~~2019~~2020 and for the fiscal year ~~2020,~~2021, the state of Tennessee implemented specific individual nursing facility ~~rate~~ increases. We estimate the resulting increase in revenue for the ~~2020~~2021 fiscal year will be approximately ~~$1,280,000 annually,~~$1,500,000, or ~~$320,000~~$375,000 per quarter.

Effective October 1, ~~2019~~2020 and for the fiscal year ~~2020,~~2021, the state of South Carolina implemented specific individual nursing facility rate changes. We estimate the resulting increase in revenue for the ~~2020~~2021 fiscal year will be approximately ~~$2,012,000~~$3,600,000 annually, or ~~$503,000~~$900,000 per quarter.

We have also received from many of the states in which we operate a supplemental Medicaid payment to help mitigate the incremental costs resulting from the COVID-19 public health emergency. For the three months ended March 31, 2021, we have recorded $3,955,000 in net patient revenues in our interim condensed consolidated statements of operations for these supplemental Medicaid payments.

For the first three months of ~~2020,~~2021, our average Medicaid per diem increased ~~2.7%~~8.5% compared to the same period in ~~2019.~~2020.

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.

In November ~~2019,~~2020, CMS released aits final rule ~~that sets forth the implementation of the PDGM and a 30-day unit of~~outlining fiscal year 2021 Medicare payment ~~as mandated by the Bipartisan Budget Act of 2018 (“BBA”).~~rates. CMS projects payments to home health agencies in fiscal year ~~2020~~2021 will increase in aggregate by ~~1.3%~~1.9%, or ~~$250 million, based on proposed policies.~~$390 million. The increase reflects the effects of the ~~1.5%~~2.0% home health payment update percentage ~~as mandated by the BBA~~ and a ~~0.2%~~0.1% decrease ~~in aggregate payments~~ due to reductions made by the ~~new~~ rural add-on ~~policy,~~policy. The rule also ~~mandated by~~updates the ~~BBA.~~home health wage index, limiting any decrease in a geographic area’s wage index value to no more than 5% next year.

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 behavioral health hospital; and (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’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):

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, and any gains on the acquisitions of equity method investments is helpful in allowing investors to more accurately access the Company’s operations.

The operating results for the newly constructed healthcare facilities not at full capacity for the three months ended March 31, 2021 include facilities that began operations from 2019 to 2021, which is one memory care facility. For the three months ended March 31, 2020, ~~include~~included are facilities that began operations from 2018 to 2020, (one memory care facility). For the three months ended March 31, 2019, included are facilities that began operations from 2017 to 2019 (one skilled nursing facility, two assisted living facilities, andwhich is one memory care ~~facility).~~facility.

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

	Three Months Ended March 31						Three Months Ended March 31
	2020			2019			2021			2020

Net income/(loss) attributable to National Healthcare Corporation	$	(26,852	)	$	21,269		$	21,267		$	(26,852	)
Non-GAAP adjustments
Non-GAAP adjustments:
Unrealized (gains)/losses on marketable equity securities		60,392			(6,838	)		(7,059	)		60,392
Gain on acquisitions of equity method investments								-			(1,707	)
Operating results for newly opened facilities not at full capacity		203			595			245			203
Gain on acquisition of equity method investment		(1,707	)		-
Share-based compensation expense		466			424			496			466
Income tax provision/(benefit) on non-GAAP adjustments		(15,432	)		1,501
Provision (benefit) of income taxes on non-GAAP adjustments								1,643			(15,432	)
Non-GAAP Net income	$	17,070		$	16,951		$	16,592		$	17,070

GAAP diluted earnings/(loss) per share	$	(1.76	)	$	1.39
Non-GAAP adjustments

GAAP diluted earnings per share							$	1.38		$	(1.76	)
Non-GAAP adjustments:
Unrealized (gains)/losses on marketable equity securities		2.92			(0.33	)		(0.33	)		2.92
Gain on acquisitions of equity method investments								-			(0.08	)
Operating results for newly opened facilities not at full capacity		0.01			0.03			0.01			0.01
Gain on acquisition of equity method investment		(0.08	)		-
Share-based compensation expense		0.02			0.02			0.02			0.02
Non-GAAP diluted earnings per share	$	1.11		$	1.11		$	1.08		$	1.11

The following table and discussion set forth items from the interim condensed consolidated statements of ~~income~~operations as a percentage of net operating revenues and grant income for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

	Three Months Ended March 31						Three Months Ended March 31
	2020			2019			2021			2020
Net operating revenues		100.0	%		100.0	%
Net operating revenues and grant income								100.0	%		100.0	%
Costs and expenses:
Salaries, wages and benefits		57.5			56.9
Salaries, wages, and benefits								57.8			57.5
Other operating		28.0			28.0			28.0			28.0
Facility rent		4.0			4.1			4.0			4.0
Depreciation and amortization		4.1			4.2			4.0			4.1
Interest		0.2			0.4			0.1			0.2
Total costs and expenses		93.8			93.6			93.9			93.8
Income from operations		6.2			6.4			6.1			6.2
Non–operating income		3.2			2.4			2.5			3.2
Unrealized gains/(losses) on marketable equity securities		(23.6	)		2.8			2.8			(23.6	)
Income/(loss) before income taxes		(14.2	)		11.6			11.4			(14.2	)
Income tax provision/(benefit)		3.7			(3.0	)
Income tax (provision) benefit								(2.9	)		3.7
Net income/(loss)		(10.5	)		8.6			8.5			(10.5	)
(Income)/loss attributable to noncontrolling interest		0.0			0.0
Net income/(loss) attributable to common stockholders of NHC		(10.5	%)		8.6	%
Net income attributable to noncontrolling interest								0.0			0.0
Net income/(loss) attributable to stockholders of NHC								8.5	%		(10.5	%)

Three Months Ended March 31, 20202021 Compared to Three Months Ended March 31, ~~201~~92020

Results for the quarter ended March 31, ~~2020~~2021 compared to the first quarter of ~~2019~~2020 include a ~~3.2% increase~~2.0% decrease in net operating revenues and grant income and a ~~0.1% increase~~3.7% decrease in income from operations. Excluding the unrealized ~~losses~~gains in our marketable equity securities portfolio and the other non-GAAP adjustments, non-GAAP net income for the three months ended March 31, ~~2020~~2021 was ~~$17,070,000~~$16,592,000 compared to ~~$16,951,000~~$17,070,000 for the first quarter of ~~2019,~~2020, which is ~~an increase~~a decrease of ~~0.7%~~2.8%.

Net patient revenues ~~increased $7,984,000,~~decreased $27,240,000, or ~~3.4%~~11.2%, compared to the same period last year. Included in net patient revenues for the three months ending March 31, 2021 and 2020 is $3,955,000 and $1,674,000, respectively, of COVID-19 supplemental Medicaid payments that were received to help mitigate the incremental costs in fighting the public health emergency.

~~Despite COVID-19 impacting the second half of March 2020, the~~The total census at owned and leased skilled nursing facilities for the quarter averaged ~~91.4%~~76.8%, compared to an average of ~~90.2%~~91.4% for the same quarter a year ago. For the first time since the beginning of the COVID-19 pandemic, the census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through March 31, 2021. Our Medicare per diem rates increased ~~9.7%,~~6.3% and managed care per diem rates increased ~~1.8%~~3.1% compared to the same quarter a year ago. Medicaid and private pay per diem rates increased ~~2.7%~~8.5% and ~~2.4%~~decreased 1.6%, 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 ~~2.5%~~6.9% compared to the same quarter a year ago.

The Company opened a memory care facility in 2019 that continues to stabilize and increased net patient revenues approximately $584,000 for the three months ended March 31, 2020 compared to the same quarter a year ago. Our homecare operations had a decline in net patient revenues of approximately $1,368,000 in the first quarter of 2020 compared to the third quarter of 2019. Our homecare net patient revenue decline was primarily due to volume declines.

In February 2020, the Company acquired the remaining 75% ownership interest in a 166-bed skilled nursing facility in Knoxville, Tennessee. For the three months ended March 31, ~~2020,~~2021, this skilled nursing facility increased net patient revenues approximately ~~$1,435,000~~$1,670,000 compared to the ~~same~~first quarter of 2020. In November 2020, the Company sold a skilled nursing facility located in Town & Country, Missouri. For the ~~prior year.~~three months ended March 31, 2021, the sale of this facility decreased net patient revenue by $2,233,000 compared to the first quarter of 2020.

Other revenues decreased ~~$145,000,~~$660,000, or ~~1.2%~~5.5%, compared to the same quarter last year, as further detailed in Note 45 to our interim condensed consolidated financial statements.

During the three months ended March 31, 2021, we recorded $22,749,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund. See Note 3 - Coronavirus Pandemic for additional information.

Total costs and expenses for the ~~first quarter of 2020~~three months ended March 31, 2021 compared to the ~~first quarter~~same period of ~~2019 increased $7,818,000~~2020 decreased $4,568,000, or ~~3.4%~~1.9%, to ~~$240,319,000~~$235,751,000 from ~~$232,501,000.~~$240,319,000.

Salaries, wages, and benefits ~~increased $6,081,000,~~decreased $2,339,000, or ~~4.3%~~1.6%, to ~~$147,469,000~~$145,130,000 from ~~$141,388,000.~~$147,469,000. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was ~~57.5%~~57.8% compared to ~~56.9%~~57.6% for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The primary reason for salaries and wages ~~and benefits increasing as a percentage~~decreasing was the continued initiative of ~~net operating revenues is due~~controlling expenses among our operations to mitigate our ~~existing~~occupancy decline among our skilled nursing ~~facilities~~ and assisted living facilities. The expense controlling measures were offset by the ~~continued wage pressure in most of the markets in which we operate. We also incurred $827,000 in~~ incentive compensation, ~~during the month of March 2020 that was~~or "combat pay", paid to our frontline partners in fighting the COVID-19 ~~virus. Besides the~~pandemic. We incurred approximately $3,348,000 and $827,000 in incentive compensation ~~being paid~~related to COVID-19 for the three months ended March 31, 2021 and 2020, respectively. Excluding the COVID-19 related compensation, our ~~tireless partners on~~salaries, wages, and benefits decreased 3.3% for the ~~frontlines, we continue~~three months ended March 31, 2021 compared to ~~take every possible action to support our partners with added employee benefits, such as a one-month health insurance premium holiday in April and extended paid sick leave days.~~the first quarter of 2020.

Other operating expenses ~~increased $2,236,000,~~decreased $1,515,000, or ~~3.2%~~2.1%, to $70,153,000 for the 2021 period compared to $71,668,000 for the 2020 ~~period compared to $69,432,000 for the 2019~~ period. Other operating expenses as a percentage of net operating ~~revenue~~revenues and grant income was 28.0% for ~~both~~ the three months ended March 31, 2021 and 2020, ~~and 2019.~~respectively. During the first quarter of 2021 and ~~specifically March~~ 2020, we incurred approximately $5,153,000 and $948,000, respectively, in COVID-19 related expenses in purchasing personal protective equipment, ~~additional~~ nursing supplies, ~~food~~ and ~~dietary~~lab and testing supplies.

The ~~decrease~~expense controlling efforts have helped mitigate the increase in ~~interest expense is~~other operating expenses due ~~from our long-term debt being lower during~~to COVID-19. Excluding the COVID-19 related expenses, other operating expenses decreased $5,720,000, or 8.1%, for the three months ended March 31, 2021 compared to the first quarter of 2020 than in the same quarter a year ago. As a precautionary measure at the end of March 2020, we drew an additional $40,000,000 on our credit facility. At March 31, 2020, we have $50 million outstanding on our credit facility.2020.

Non–operating income ~~increased~~decreased by ~~$2,145,000~~$1,886,000 compared to the same period last year, as further detailed in Note 56 to our interim condensed consolidated financial statements. The increase in non-operating income is primarily due from the gain on the acquisition of an equity method investment. In February 2020, a gain of $1,707,000 was recorded on the acquisition of the remaining 75% financial interest in a 166-bed skilled nursing facility in Knoxville, Tennessee. We previously held a 25% noncontrolling ownership interest and equity method investment in this facility. Upon acquiring the remaining 75% financial interest, we had to value the business and our previously held equity position based upon the facility’s fair value.

The income tax ~~benefit~~provision for the three months ended March 31, ~~2020~~2021 is ~~$9,625,000~~$7,233,000 (an effective income tax rate of ~~26.4%~~25.3%). Excluding ~~nondeductible expenses,~~certain items, we expect our corporate (federal and state) income tax rate for ~~2020~~2021 to be approximately 26.0%.

The noncontrolling interest in ~~a subsidiary~~subsidiaries is presented within total equity of the Company’s consolidated balance sheets. The company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its 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.

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):

Net cash provided by operating activities for the three months ended March 31, ~~2020~~2021 was ~~$7,754,000~~$12,589,000 as compared to ~~$11,601,000~~$7,754,000 in the same period last year. Cash provided by operating activities consisted of a net ~~loss~~income of ~~$26,816,000~~$21,308,000 and adjustments for non–cash items of ~~$51,768,000.~~$2,283,000. There was cash used for working capital needs in the amount of ~~$19,547,000~~$16,899,000 for ~~the~~ three months ended March 31, ~~2020~~2021 compared to ~~$13,046,000~~$19,547,000 for the same period a year ago. We also received cash distributions from our unconsolidated investments of ~~$2,349,000~~$5,897,000 during the three months ended March 31, ~~2020~~2021, compared to ~~$31,000~~$2,349,000 for the same period a year ago.

Included in the adjustments for non-cash items are depreciation expense, equity in earnings of unconsolidated investments, unrealized gains/losses on our marketable equity securities, deferred taxes, stock compensation, and a gain on the acquisition of a 166-bed skilled nursing facility in Knoxville, Tennessee during the first quarter of 2020 in which we previously held a noncontrolling ownership interest.

Net cash used in investing activities totaled $5,852,000 for the three months ended March 31, 2021 compared to $16,225,000 for the three months ended March 31, ~~2020 compared to $2,947,000 for the three months ended March 31, 2019.~~2020. Cash used for property and equipment additions was ~~$6,628,000~~$4,327,000 and ~~$5,874,000~~$6,628,000 for the three months ended March 31, 2021 and 2020, respectively. The Company collected notes receivable of $255,000 and ~~2019,~~$376,000 for the three months ended March 31, 2021 and 2020, respectively. Purchases of marketable securities, net of sales, resulted in cash used of $1,780,000 and $2,950,000 for the three months ended March 31, 2021 and 2020. The acquisition of the 166-bed skilled nursing facility in Knoxville, Tennessee resulted in cash used of $6,648,000 for the three months ended March 31, 2020. The Company collected notes receivable of $376,000 and $353,000 for the three months ended March 31, 2020 and 2019, respectively. Purchases of restricted marketable debt securities, net of sales, resulted in cash used of $2,950,000 for the three months ended March 31, 2020. Sales of restricted marketable debt securities, net of purchases, resulted in positive cash flow of $3,011,000 for the three months ended March 31, 2019.

Net cash used in financing activities totaled $9,148,000 for the three months ended March 31, 2021 compared to net cash provided by financing activities ~~totaled~~of $31,641,000 ~~compared to net cash used of $8,875,000 for the three months ending March 31, 2020 and 2019, respectively. Borrowings under our credit facility resulted in an increase of cash of $40,000,000~~ for the three months ended March 31, 2020. We made principal payments under our finance lease obligations in the amount of ~~$1,019,000~~$1,081,000 and ~~$959,000~~$1,019,000 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Cash used for dividend payments to common stockholders totaled ~~$7,968,000~~$7,987,000 in the current year period compared to ~~$7,623,000~~$7,968,000 for the same period a year ago. InWe made borrowings under our credit facility of $40,000,000 during the ~~current period, $400,000 was provided by the issuance of common stock compared to $579,000 in the prior year period.~~three months ended March 31, 2020.

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 ~~$69,492,000,~~$134,107,000 and our marketable ~~equity~~ securities of ~~$92,061,000, and as needed, our borrowing capacity on the credit facility,~~$184,738,000 are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months.

In April 2020, the Company also submitted requests and received funding as part of the CMS COVID-19 Accelerated Payment Program. The CMS COVID-19 Accelerated Payment Program is a streamlined version of existing policy that allows the MAC's to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received $50,744,000 as part of this Medicare Accelerated 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 Program proceeds will be repaid within 210 days from the April 2020 receipt of the funds. These funds are not reflected in our first quarter 2020 interim condensed consolidated financial statements.

The CARES Act also temporarily permits employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would be due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. Currently, we expect the deferral of these payroll taxes to improve our liquidity and cash available for operations during 2020 by approximately $21 million to $26 million, or $7 million to $8.5 million per quarter (2^nd~~, 3~~^rd~~, and 4~~^th ~~quarter impact).~~

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of ~~$69,492,000,~~$134,107,000 and our marketable ~~equity~~ securities of ~~$92,061,000 and our borrowing capacity on the credit facility.~~$184,738,000. We also have substantial value in our unencumbered real estate assets which could potentially be used as collateral in future borrowing opportunities. At March 31, 2020, the outstanding balance on the credit facility is $50,000,000; therefore, leaving $10,000,000 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.2021, we do not have any long-term debt.

Our ability ~~to refinance the credit agreement,~~ to meet our long–term contractual obligations, and to finance our operating requirements and growth plans will depend upon our future performance. Our future performance 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, as well as many unforeseen factors.

~~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. The plaintiffs are seeking unspecified damages. On April 16, 2018, the United States filed a Notice of Election to Decline Intervention with respect to the allegations asserted in this action. On March 14, 2020, the Court entered an Order granting the Defendant’s Motion to Dismiss.

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following 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. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

~~See Note 2 to the interim condensed consolidated financial statements for the impact of new accounting standards.~~

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.

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 March 31, ~~2020,~~2021, we have available for sale marketable debt securities in the amount of ~~$147,811,000.~~$189,175,000. 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 March 31, 2020, our credit facility bears interest at a variable interest rate. Currently, we have an outstanding balance of $50.0 million on the credit facility, all due within a year. Based on our outstanding balance, a 1% change in interest rates would change our annual interest cost by approximately $500,000.

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 of Directors.

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.

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 March 31, ~~2020,~~2021, the fair value of our marketable equity securities is approximately ~~$92,061,000.~~$140,329,000. Of the ~~$92.1~~$140.3 million equity securities portfolio, our investment in NHI comprises approximately ~~$80.7~~$117.9 million, or ~~87.7%~~84.0%, 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 ~~$9.2~~$14.0 million. At March 31, ~~2020,~~2021, our equity securities had unrealized gains of ~~$61.9~~$105.4 million. Of the ~~$61.9~~$105.4 million of unrealized gains, ~~$56.0~~$93.1 million is related to our investment in NHI.

As of March 31, ~~2020,~~2021, 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 March 31, ~~2020.~~2021.

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

~~We are providing~~During the ~~disclosure below and supplementing~~three months ended March 31, 2021, 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~~10-K for the year ended December 31, 2019 based on information currently known to us and recent developments since the date of the 2019 From 10-K filing. The additional risk factor identified should be read in conjunction with the risk factors described in the 2019 Annual Report.

~~COVID-19 and other pandemics, epidemics, or outbreaks of a contagious illness may adversely affect our operating results, cash flows and financial condition.~~ COVID-19 coronavirus outbreak and other pandemics, epidemics, or outbreaks of a contagious illness, and similar events, may cause harm to us, our partners (employees), our patients, our vendors and supply chain partners, and financial institutions, which could have a material adverse effect on our results of operations, financial condition and cash flows. The impacts may include, but would not be limited to:

The further spread of COVID-19, and the requirements to take action to help limit the spread of the virus, could impact the resources required to carry out our business as usual and may have a material adverse effect on our results of operations, financial condition and cash flows. The extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the ongoing geographic spread of the virus, the severity of the virus, the duration of the outbreak and the type and duration of actions that may be taken by various governmental authorities in response to the outbreak. Any of these developments, individually or in aggregate, could materially impact our business and our financial results and condition.2020.

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.

PART I. FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements	3

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2223

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3233

Item 4.	Controls and Procedures	3334

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3334

Item 1A	Risk Factors	3334

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3334

Item 3.	Defaults Upon Senior Securities	3334

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	3534

	Three Months Ended March 31
	2021		2020
Net revenue	$	15,228	$	15,826
Expenses		11,946		12,356
Net income	$	3,282	$	3,470

	Weighted Average Interest Rate		Maturity		March 31, 2020			December 31, 2019
	Variable
Credit facility, interest payable monthly		2.4%		2020	$	50,000		$	10,000
Less current portion						(50,000	)		(10,000	)
Total long-term debt					$	-		$	-

Options Outstanding March 31, 2020	Exercise Prices			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
133,958	$52.93	-	$62.78		61.80		1.82
701,269	$72.94	-	$86.48		74.19		2.05
835,227					72.20		2.01

Options Outstanding March 31, 2021	Exercise Prices				Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
135,684		60.73	-	67.28		63.41		2.1
620,076		72.94	-	84.30		74.32		1.1
755,760						72.36		1.3

Balance at December 31, 2020	$	51,253
Payments received		0
Payments recognized		-
Balance at March 31, 2021	$	51,253

	Three Months Ended March 31, 2019
(As adjusted)	Inpatient Services		Homecare		All Other		Total
Revenues:
Net patient revenues	$	221,635	$	14,476	$	-	$	236,111
Other revenues		231		-		11,943		12,174
Net operating revenues		221,866		14,476		11,943		248,285

Costs and expenses:
Salaries, wages and benefits		129,059		8,399		3,930		141,388
Other operating		62,629		4,252		2,551		69,432
Rent		8,291		462		1,485		10,238
Depreciation and amortization		9,653		61		803		10,517
Interest		348		-		578		926
Total costs and expenses		209,980		13,174		9,347		232,501

Income from operations		11,886		1,302		2,596		15,784

Non-operating income		-		-		6,001		6,001
Unrealized gains on marketable equity securities		-		-		6,838		6,838

Income before income taxes	$	11,886	$	1,302	$	15,435	$	28,623

	Fair Value Measurements Using
March 31, 2020	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	$	69,492	$	69,492	$	–	$	–
Restricted cash and cash equivalents		14,688		14,688		–		–
Marketable equity securities		92,061		92,061		–		–
Corporate debt securities		67,151		47,434		19,717		–
Mortgage–backed securities		53,465		–		53,465		–
U.S. Treasury securities		14,130		14,130		–		–
State and municipal securities		13,065		1,974		11,091		–
Total financial assets	$	324,052	$	239,779	$	84,273	$	–

	●	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);

	●	the uncertainty of the extent, duration and effects of the COVID-19 pandemic and the response of governments

	●	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.

	Three Months Ended March 31						Three Month Change
	2020			2019			$			%
Cash, cash equivalents, restricted cash and restricted cash equivalents, at beginning of period	$	61,010		$	54,920		$	6,090			11.1

Cash provided by operating activities		7,754			11,601			(3,847	)		(33.2	)

Cash used in investing activities		(16,225	)		(2,947	)		(13,278	)		(450.6	)

Cash provided by/(used in) financing activities		31,641			(8,875	)		40,516			456.5

Cash, cash equivalents, restricted cash and restricted cash equivalents, at end of period	$	84,180		$	54,699		$	29,481			53.9

Exhibit No.		Description

3.1		Certificate of Incorporation of National HealthCare Corporation (Incorporated by reference to Exhibit 3.1 to the ~~Registrant’s~~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~~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		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive File (embedded within the Inline XBRL document and include in Exhibit 101)

	NATIONAL HEALTHCARE CORPORATION
	(Registrant)

Date: May ~~7, 2020~~6, 2021	/s/ Stephen F. Flatt
	Stephen F. Flatt
	Chief Executive Officer



Date: May ~~7, 2020~~6, 2021	/s/ Brian F. Kidd
	Brian F. Kidd
	Senior Vice President and Controller
	(Principal Accounting Officer)