FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 of 15(d)
of the Securities Exchange Act of 1934
For quarter ended March 31, 1997 Commission file number 33-9881
NATIONAL HEALTHCARE L.P.
(Exact name of registrant as specified in its Charter)
Delaware 62-1292855
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
100 Vine Street
Murfreesboro, TN 37130
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (615) 890-2020
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.
Yes x No
(2) Has been subject to such filing requirements for the past 90 days.
Yes x No
8,860,970 units were outstanding as of May 8, 1997.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
NATIONAL HEALTHCARE L.P.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31
1997 1996
(in thousands)
REVENUES:
Net patient revenues $ 94,583 $ 80,607
Other revenues 11,280 11,548
Net revenues 105,863 92,155
COSTS AND EXPENSES:
Salaries, wages and benefits 59,215 51,869
Other operating 33,126 28,314
Depreciation and amortization 3,735 3,035
Interest 2,829 3,472
Total costs and expenses 98,905 86,690
NET INCOME $ 6,958 $ 5,465
EARNINGS PER UNIT:
Primary $ .79 $ .64
Fully diluted $ .69 $ .56
WEIGHTED AVERAGE UNITS OUTSTANDING:
Primary 8,797,164 8,575,499
Fully diluted 10,698,932 10,524,051
CASH DISTRIBUTIONS PAID PER UNIT $ .60 $ .52
NET INCOME ALLOCABLE TO PARTNERS:
General Partners $ 70 $ 55
Limited Partners 6,888 5,410
$ 6,958 $ 5,465
The accompanying notes to interim condensed consolidated financial
statements are an integral part of these statements.
<PAGE>
NATIONAL HEALTHCARE L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
March 31 December 31
1997 1996
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,570 $ 1,881
Cash held by trustees 3,546 2,274
Marketable securities 16,889 17,968
Accounts receivable, less allowance for
doubtful accounts of $5,116 and $4,739 55,974 50,902
Notes receivable 5,426 2,515
Inventory at lower of cost (first-in,
first-out method) or market 4,301 3,572
Prepaid expenses and other assets 1,300 982
Total current assets 89,006 80,094
PROPERTY AND EQUIPMENT AND ASSETS UNDER
ARRANGEMENT WITH OTHER PARTIES:
Property and equipment at cost 252,914 234,934
Less accumulated depreciation and
amortization (51,232) (48,171)
Assets under arrangement with
other parties 21,992 22,538
Net property, equipment and assets under
arrangement with other parties 223,674 209,301
OTHER ASSETS:
Bond reserve funds, mortgage replacement
reserves and other deposits 186 141
Unamortized financing costs 1,554 1,601
Notes receivable 95,549 95,206
Notes receivable from National 13,076 12,153
Minority equity investments and other 6,367 6,244
Total other assets 116,732 115,345
$ 429,412 $404,740
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
<PAGE>
NATIONAL HEALTHCARE L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
LIABILITIES AND CAPITAL
March 31 December 31
1997 1996
(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,776 $ 8,574
Trade accounts payable 14,053 11,835
Accrued payroll 24,500 28,963
Amount due to third-party payors 20,496 13,135
Accrued interest 725 501
Other current liabilities 10,015 9,795
Total current liabilities 77,565 72,803
LONG-TERM DEBT, less current portion 137,825 124,678
DEBT SERVICED BY OTHER PARTIES, LESS
CURRENT PORTION 33,133 32,857
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 787 791
COMMITMENTS, CONTINGENCIES AND GUARANTEES
SUBORDINATED CONVERTIBLE NOTES 28,866 28,908
DEFERRED INCOME 16,054 16,166
PARTNERS' CAPITAL:
General partners 1,427 1,408
Limited partners 133,755 127,129
Total partners' capital 135,182 128,537
$429,412 $404,740
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
<PAGE>
NATIONAL HEALTHCARE L.P.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
1997 1996
(in thousands)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 6,958 $ 5,465
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 3,564 3,146
Provision for doubtful accounts 621 643
Amortization of intangibles and deferred charges 244 396
Amortization of deferred income (112) (89)
Equity in earnings of unconsolidated investments (16) (178)
Distributions from unconsolidated investments 13 15
Changes in assets and liabilities:
Increase in accounts receivable (5,693) (3,475)
(Increase) decrease in inventory (729) 44
Increase in prepaid expenses and other assets (318) (149)
Increase (decrease) in trade accounts payable 2,218 (2,221)
Decrease in accrued payroll (4,463) (2,472)
Increase (decrease) in amounts due to third
party payors 7,361 (3,762)
Increase in accrued interest 224 384
Increase (decrease) in other current liabilities 220 (680)
10,092 (2,933)
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to and acquisitions of property and
equipment, net (17,936) (619)
Investment in long-term notes receivable and loan
participation agreements (7,938) (13,603)
Collection of long-term notes receivable and loan
participation agreements 3,762 11,135
(Increase) decrease in minority equity invest-
ments and other (252) 221
(Increase) decrease in marketable securities 363 (1,600)
(22,001) (4,466)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from debt issuance 13,952 12,086
(Increase) decrease in cash held by trustee (1,272) 323
Increase in minority interests in subsidiaries (4) --
(Increase) decrease in bond reserve funds, mortgage
replacement reserves and other deposits (45) 406
Issuance of partnership units 534 627
Collection of receivables 4,895 5
Payments on debt (1,385) (424)
Cash distributions to partners (5,068) (4,327)
Increase in financing costs (9) --
11,598 8,696
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (311) 1,297
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,881 4,835
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,570 $ 6,132
Supplemental Information:
Cash payments for interest expense $ 2,605 $ 3,103
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
<PAGE>
NATIONAL HEALTHCARE L.P.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
1997 1996
(in thousands)
During the three months ended March 31, 1997, NHC
was released from its liability on debt serviced
by others by the respective lenders
Debt serviced by other parties $ --- $(2,536)
Assets under arrangement with other parties --- 2,536
During the three months ended March 31, 1997 and
March 31, 1996, respectively, $42,000 and $686,000
of convertible subordinated debentures were converted
into 2,760 units and 45,112 units of NHC's partnership units:
Convertible subordinated debentures (42) (686)
Financing costs --- 1
Accrued interest --- (5)
Partner's capital 42 690
<PAGE>
<TABLE>
NATIONAL HEALTHCARE L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(dollars in thousands)
<CAPTION>
Receivables Unrealized Total
Number of From Sale of Gains(Losses) General Limited Partners'
Units Units on Securities Partners Partners Capital
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT 12/31/96 8,467,959 $(22,674) $2,171 $1,408 $147,632 $128,537
Net income -- -- -- 70 6,888 6,958
Collection of
receivables -- 4,895 -- -- -- 4,895
Units sold 389,466 (11,577) -- -- 12,111 534
Units in conversion of
convertible debentures
to partnership units 2,760 -- -- -- 42 42
Unrealized losses on
securities -- -- (716) -- -- (716)
Cash distributions
($.60 per unit) -- -- -- (51) (5,017) (5,068)
BALANCE AT 3/31/97 8,860,185 $(29,356) $1,455 $1,427 $161,656 $135,182
BALANCE AT 12/31/95 8,353,114 $(26,196) $ 345 $1,290 $133,460 $108,899
Net income -- -- -- 55 5,410 5,465
Collection of
receivables -- 5 -- -- -- 5
Units sold 25,670 -- -- -- 627 627
Units in conversion of
convertible debentures
to partnership units 45,112 -- -- -- 690 690
Unrealized gains on
securities -- -- 83 -- -- 83
Cash distributions
($.52 per unit) -- -- -- (43) (4,284) (4,327)
BALANCE AT 3/31/96 8,423,896 $(26,191) $ 428 $1,302 $135,903 $111,442
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
<PAGE>
NATIONAL HEALTHCARE L.P.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
Note 1 - CONSOLIDATED FINANCIAL STATEMENTS:
The financial statements for the three months ended March 31, 1997 and
1996, which have not been examined by independent public accountants, reflect,
in the opinion of management, all adjustments necessary to present fairly the
data for such periods. The results of the operations for the three months
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the entire fiscal year ended December 31, 1997. The interim
condensed balance sheet at December 31, 1996 is taken from the audited
financial statements at that date. The interim condensed financial statements
should be read in conjunction with the consolidated financial statements,
including the notes thereto, for the periods ended December 31, 1996, December
31, 1995, and December 31, 1994.
Note 2 - OTHER REVENUES:
Three Months Ended
March 31
1997 1996
(in thousands)
Revenue from managed centers $ 8,282 $ 8,341
Guarantee fees 162 180
Advisory fee from NHI 775 797
Earnings on securities 521 61
Equity in earnings of
unconsolidated investments -- 160
Interest income 981 1,589
Other 559 420
$11,280 $11,548
Revenues from managed centers include management fees and interest
income on notes receivable from the managed centers. "Other" revenues include
non-health care related earnings.
Note 3 - INVESTMENTS IN MARKETABLE SECURITIES:
NHC considers its investments in marketable securities as available for
sale securities and unrealized gains and losses are recorded in partners'
capital in accordance with SFAS 115.
The adoption of SFAS 115 did not have a material effect on NHC's
financial position or results of operations.
Proceeds from the sale of investments in debt and equity securities
during the period ended March 31, 1997 was $511,000. Gross investment gains
of $149,000 were realized on these sales during the period ended March 31,
1997. Realized gains and losses from securities sales are determined on the
specific identification of the securities.
Note 4 - GUARANTEES:
In order to obtain management agreements and to facilitate the
construction or acquisition of certain health care centers which NHC manages
for others, NHC has guaranteed some or all of the debt (principal and
interest) on those centers. For this service NHC charges an annual guarantee
fee of 1% to 2% of the outstanding principal balance guaranteed, which fee is
in addition to NHC's management fee. The principal amounts outstanding under
the guarantees is approximately $69,901,000 (net of available debt service
reserves) at variable and fixed interest rates with a weighted average of 4.7%
at March 31, 1997.
NHC has entered into an interest rate cap arrangement with a managed
entity under which NHC has guaranteed that the entity's weighted average
interest rate on its first and second mortgage debt will not exceed 9.0%. The
entity's first mortgage debt is tax-exempt, floating-rate bonds and its second
mortgage debt is owed to NHC. The bond debt outstanding under the arrangement
is $16,000,000 and the weighted average rate of both debts is 6.3% at March
31, 1997. NHC is obligated under the agreement only for the term of its
management contract, as extended, and only so long as the tax-exempt bonds are
outstanding. At March 31, 1997, NHC expects to have no additional liability
as a result of this interest rate cap arrangement.
Note 5 - NEW ACCOUNTING PRONOUNCEMENTS:
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure", ("SFAS
129"). SFAS 129 establishes standards for disclosing information about an
entity's capital structure. NHC will be required to adopt SFAS 129 in the
fourth quarter of 1997. Management does not expect the adoption to have a
material impact on NHC's financial position, results of operation or cash
flows.
Statement of Financial Accounting Standards No. 128, "Earnings per
Share", ("SFAS 128"), has been issued effective for fiscal periods ending
after December 15, 1997. SFAS No. 128 establishes standards for computing and
presenting earnings per share. NHC is required to adopt the provisions of
SFAS No. 128 in the fourth quarter of 1997. Under the standards established
by SFAS 128, earnings per share is measured at two levels: basic earnings per
share and diluted earnings per share. Basic earnings per share is computed
by dividing net income by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is computed by
dividing net income by the weighted average number of common shares after
considering the additional dilution related to preferred stock, convertible
debt, options and warrants. Management does not expect the adoption to have a
material impact on NHC's financial position, results of operation or cash
flows.
Note 6 - LEGAL PROCEEDINGS
In March 1996, Florida Convalescent Centers, Inc. (FCC), an independent
Florida corporation for whom the company manages sixteen licensed nursing
centers in Florida, gave NHC notice of its intent not to renew a management
contract. Pursuant to written agreements between the parties, NHC valued the
center, offering to either purchase the center at the price so valued or
require FCC to pay to NHC certain deferred compensation based upon that value.
FCC responded on March 26, 1996, by filing a Declaratory Judgment suit in the
Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County,
Florida, requesting the court to interpret the parties' rights under their
contractual arrangements. This suit is still in the preliminary stages and no
hearing date has been scheduled.
In January, 1997, FCC notified NHC that it currently does not intend to
renew an additional four contracts which mature in 1997, but has agreed that
NHC will remain as manager until a final decision is reached by the Sarasota
Court. The balance of the FCC contracts may be terminated in the years
2001-2002.
The company is also a defendant in a lawsuit styled Braeuning et al vs.
National HealthCare L.P. et al filed "under seal" in the U. S. District Court
of the Northern district of Florida on April 9, 1996. The company has not yet
been served in the suit. The court removed the seal from the complaint - but
not the file itself - on March 20, 1997. The suit alleges that NHC has
submitted cost reports containing "fraudulent allocation of routine nursing
services to ancillary service cost centers" and improper allocation of skilled
nursing service hours in four managed centers, all in the state of Florida.
The suit was filed under what is commonly referred to as the "Whistleblower
Act".
In regard to the allegations contained in the lawsuit, NHC believes that
the cost report information of the managed centers have been appropriately
filed. Because the facilities are managed, any cost report settlements accrue
to the owner of the managed center and not to NHC, except to the extent that
the increase in revenues would increase NHC's 6% management fee. NHC cannot
predict at this time the ultimate outcome of the suit but will strongly defend
its action in this matter.
Additionally, as reported in NHC's 1996 10-K, in October 1996 two
managed centers in Florida were audited by representatives of the regional
office of the Office of the Inspector General ("OIG"). As part of these
audits, the OIG reviewed various records of the facilities relating to
allocation of nursing hours and contracts with suppliers of outside services.
At one center the OIG indicated during an exit conference that it had no
further questions but has not yet issued a final report. At the second
facility - which is one of four named in the Braeuning lawsuit - the OIG
determined that certain records were insufficient and NHC supplied the
additional requested information. The company is awaiting final disposition
of these matters.
Florida is one of the states in which governmental officials are
conducting "Operation Restore Trust", a federal/state program aimed at
detecting and eliminating fraud and abuse by providers in the Medicare and
Medicaid programs. The OIG has increased its investigative actions in Florida
as part of Operation Restore Trust. NHC will continue to monitor the progress
of the OIG audit, and cannot predict whether the OIG will take further action
or request additional information as a result of either of the two audits
conducted or any that may be conducted in the future.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Overview
National HealthCare L.P. (NHC, or the Company) operates and manages 100
long-term health care centers with 13,559 beds in ten states. NHC provides
nursing care as well as ancillary therapy services to patients in a variety of
settings including long-term care nursing centers, managed care specialty
units, subacute care units, Alzheimer's care units, homecare programs, and
facilities for assisted living. NHC also operates retirement centers.
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996.
Results for the three month period ended March 31, 1997 include a 27%
increase over the same period in 1996 in net income, a 23% increase in fully
diluted earnings per unit, and a 15% increase in net revenues.
The increased revenues for the quarter reflect the continued growth of
operations. Compared to the quarter a year ago, NHC has increased the number
of owned or leased long-term care beds by 120 beds from 6,661 beds to 6,781
beds. The number of long-term care beds managed for others has increased by
557 beds from 6,221 beds to 6,778 beds. Also contributing to increased
revenues are improvements in both private pay and third party payor rates.
Revenues also improved during 1997 due to increased emphasis on
rehabilitative and managed care services. The Company has extended its
rehabilitative services into additional geographic areas and to additional
customers.
Revenues from managed centers, which are included in the Statements of
Income in Other Revenues, decreased 0.7% in 1997 from $8.34 million to $8.28
million due to decreased interest income from lower principal amounts on loans
to managed centers. The decrease was offset in part by increased management
fees from managed centers. The increased management fees are due to the
increased number of beds being managed for others. Also, management fees are
generally based upon a percentage of net revenues of the managed center and
therefore tend to increase as a facility matures and as prices rise in
general.
Total costs and expenses for the 1997 quarter increased $12.2 million or
14.1% to $98.9 million from $86.7 million. Salaries, wages and benefits, the
largest operating costs of this service company, increased $7.3 million or
14.2% to $59.2 million from $51.8 million. Other operating expenses increased
$4.8 million or 17.0% to $33.1 million for the 1997 first quarter compared to
$28.3 million in the 1996 period. Depreciation and amortization increased
23.1% to $3.7 million. Interest costs decreased $0.6 million or 18.5% to $2.8
million from $3.5 million for last year.
Increases in salaries, wages and benefits are attributable to the
increase in staffing levels due to long-term care bed additions, assisted
living expansions, homecare growth, and the increased emphasis on
rehabilitative services. Also contributing to higher costs of labor are
inflationary increases for salaries and the associated benefits as well as
adjustments in bonus and benefit programs for the quarter.
Operating costs have increased due to the increased number of beds in
operation, the expansion of assisted living services, the expansion of
homecare services, the expansion of rehabilitative and managed care services,
and due to the growth in management services provided to others, and due to
the increase in rent expense as explained below.
Depreciation and amortization increased as a result of the Company's
placing of newly constructed or purchased assets in service and due to capital
improvements at existing properties. Interest expense decreased compared to
the quarter a year ago due primarily to capital transactions which occurred in
late 1995. During December 1995, National Health Investors ("NHI") prepaid
debt on which NHC had also been obligated in the amount of $20,544,000. In
addition, NHC was released from its obligation on approximately $25,324,000 of
debt which had been transferred to NHI in 1991. Since NHC is no longer
obligated on transferred debt in the amount of $45,868,000, debt serviced by
other parties and assets under arrangement with other parties were both
reduced by $45,868,000.
The leases with NHI provide that NHC shall continue to make non-obligated
debt service rent payments equal to the debt service including
principal and interest on the obligated debt which was prepaid and from which
NHC has been released as a direct obligor. As a result, other operating
expenses are increased by the amount of the rent payments, and interest
expense is decreased by the amount of interest expense formerly associated
with the debt serviced by other parties.
The total census at owned and leased centers for the quarter averaged
94.8% compared to an average of 93.5% for the same quarter a year ago.
Liquidity and Capital Resources
During the first three months of 1997, the Company generated net cash of
$10.1 million from operating activities, $3.7 million from the collection of
long-term notes receivable, $14.0 million debt proceeds, $0.5 million from the
issuance of partnership units, and $4.9 million from the collection of
receivables. Of these funds, $17.9 million was used for additions to and
acquisitions of property and equipment, $7.9 million for investment in
long-term notes receivable and loan participation agreements, $0.4 million for
investment in debt and equity securities, $1.4 million for payments on debt;
and $5.1 million for cash distributions to partners. Cash and cash
equivalents decreased $0.3 million during the period.
At March 31, 1997, the Company's ratio of long-term obligations to
convertible debt and capital is 1.0 to 1. NHC's convertible debt converts
into units of limited partnership interest at $15.21 per unit - the units
closed at $41.50 per unit on the American Stock Exchange the last trading day
of this quarter.
The ratio of current assets to current liabilities is 1.1 to 1. Working
capital is $11.4 million. The Company is currently considering long-term and
short term financing options. These financial resources with anticipated
funds from future operations are expected to be adequate to enable the
Partnership to meet its working capital requirements and expansion goals.
Partnership Legislation
On December 22, 1987, legislation passed which requires that most
publicly traded limited partnerships, including NHC, be taxed as corporations
for federal income tax purposes. A "grandfather" clause in that legislation
allows NHC to avoid corporate taxation through 1997. It does not appear
probable that Congress will extend this clause. Therefore, unless the Company
makes some change in its structure, the Company will pay corporate taxes and
its investors will pay ordinary income tax on cash dividends received by them,
all commencing on January 1, 1998. Investors can anticipate their after tax
cash return would be diminished, it being NHC's intent to retain substantially
similar cash to that which it presently retains as a partnership. The
Managing General Partner is currently reviewing options under current tax and
regulatory laws to determine what avenues are available that will be most
beneficial to unitholders.
Development
During the first three months of 1997, the Company added a net total of
677 licensed long-term care beds, 120 beds of which are owned or leased and
557 beds of which are managed for other owners.
Currently, NHC has 894 long-term care beds under development at 18
owned, leased or managed health care centers in various locations. These beds
are either under construction or a Certificate of Need has been received from
the appropriate state agency authorizing the construction of additional
centers or beds. In addition, NHC has 430 assisted living units at six
locations and 180 retirement apartments at two locations under development,
all of which are owned.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is subject to claims and suits in the ordinary
course of business. While there are several worker's
compensation and personal liability claims and other suits
presently in the court system, management believes that the
ultimate resolution of all pending proceedings will not have
any material adverse effect on the Company or its operations.
In March 1996, Florida Convalescent Centers, Inc. (FCC), an
independent Florida corporation for whom the company manages
sixteen licensed nursing centers in Florida, gave NHC notice of
its intent not to renew a management contract. Pursuant to
written agreements between the parties, NHC valued the center,
offering to either purchase the center at the price so valued or
require FCC to pay to NHC certain deferred compensation based
upon that value. FCC responded on March 26, 1996, by filing a
Declaratory Judgment suit in the Circuit Court of the Twelfth
Judicial Circuit in and for Sarasota County, Florida, requesting
the court to interpret the parties' rights under their
contractual arrangements. FCC next sued on April 18, 1996 in
the Circuit Court for Columbia County, Florida removed on
May 1, 1996 to the United States District Court, Middle District,
Florida, Jacksonville Division to obtain possession of the center
for which it alleged the management contract had been terminated.
This suit has now been dismissed, and the issue of possession
will be decided by the Sarasota County Court. This suit is still
in the preliminary stages and no hearing date has been
scheduled.
In January, 1997, FCC notified NHC that it currently does
not intend to renew an additional four contracts which mature in
1997, but has agreed that NHC will remain as manager until a
final decision is reached by the Sarasota Court. The balance of
the FCC contracts may be terminated in the years 2001-2002.
The company is also a defendant in a lawsuit styled
Braeuning et al vs. National HealthCare L.P. et al filed "under
seal" in the U. S. District Court of the Northern district of
Florida on April 9, 1996. The company has not yet been served in
the suit. The court removed the seal from the complaint -
but not the file itself - on March 20, 1997. The suit alleges
that NHC has submitted cost reports containing "fraudulent
allocation of routine nursing services to ancillary service cost
centers" and improper allocation of skilled nursing service
hours in four managed centers, all in the state of Florida.
The suit was filed under what is commonly referred to as the
"Whistleblower Act".
In regard to the allegations contained in the lawsuit, NHC
believes that the cost report information of the managed centers
have been appropriately filed. Because the facilities are
managed, any cost report settlements accrue to the owner of
the managed center and not to NHC, except to the extent that
the increase in revenues would increase NHC's 6% management fee.
NHC cannot predict at this time the ultimate outcome of the suit
but will strongly defend its actions in this matter.
Additionally, as reported in NHC's 1996 10-K, in October
1996 two managed centers in Florida were audited by
representatives of the regional office of the Office of the
Inspector General ("OIG"). As part of these audits, the OIG
reviewed various records of the facilities relating to
allocation of nursing hours and contracts with suppliers of
outside services. At one center the OIG indicated during an exit
conference that it had no further questions but has not yet
issued a final report. At the second facility - which is one
of four named in the lawsuit - the OIG determined that certain
records were insufficient and NHC supplied the additional
requested information. The company is awaiting final
disposition of these matters.
Florida is one of the states in which governmental
officials are conducting "Operation Restore Trust", a
federal/state program aimed at detecting and eliminating fraud
and abuse by providers in the Medicare and Medicaid programs.
The OIG has increased its investigative actions in Florida as
part of Operation Restore Trust. NHC will continue to monitor
the progress of the OIG audit, and cannot predict whether the
OIG will take further action or request additional information
as a result of either of the two audits conducted or any that
may be conducted in the future.
Item 2. Changes in Securities. Not applicable
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) List of exhibits - Exhibit 27 - Financial Data Schedule
(for SEC purposes only)
(b) Reports on Form 8-K - none required
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL HEALTHCARE L.P.
(Registrant)
Date May 15, 1997 /s/ Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr.
Secretary
Date May 15, 1997 /s/ Donald K. Daniel
Donald K. Daniel
Vice President and Controller
Principal Accounting Officer
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<NAME> NATIONAL HEALTHCARE L.P.
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0
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