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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
{ X } ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 000-17596
Meridian Healthcare Growth and Income Fund Limited Partnership
(Exact Name of Registrant as Specified in its Charter)
Delaware 52-1549486
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
225 East Redwood Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to section 12(g) of the Act:
Assignee Units of Limited Partnership Interests
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of December 31, 199, there were 1,539,900 Units of Assignee Limited
Partnership Interests held by non-affiliates of the Registrant. Because there is
not an established public trading market for the Units, the aggregate market
value of the Units held by non-affiliates of the Registrant cannot be
calculated.
Documents Incorporated by Reference
The Annual Report for 1999 is incorporated by reference.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
INDEX
Page (s)
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS 3
Part I.
Item 1. Business 4-5
Item 2. Properties 5-7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7-8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial 9-13
Condition and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 13
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
Part III.
Item 10. Directors and Executive Officers of Registrant 14-16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management 16
Item 13. Certain Relationships and Related Transactions 16
Part IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 17-19
Signatures 20-21
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained herein, including certain statements in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" concerning the Fund's business outlook or future economic
performances, anticipated profitability, revenues, expenses or other financial
items together with other statements that are not historical facts are
"forward-looking statements" as that term is defined under the Federal
Securities Law. Forward-looking statements are necessarily estimates reflecting
the best judgment of the party making such statements based upon correct
information and involve a number of risks, uncertainties and other factors which
could cause actual results to differ materially from those stated in such
statements. Risks, uncertainties and factors which could affect the accuracy of
such forward-looking statements are identified in the Fund's Prospectus and the
Fund's Registration Statement filed by the Fund with the Securities and Exchange
Commission, and forward-looking statements contained herein or in other public
statements of the Fund should be considered in light of those factors. There can
be no assurance that factors will not affect the accuracy of such
forward-looking statements.
-3-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART I
Item 1. Business
Meridian Healthcare Growth and Income Fund Limited Partnership (the
"Fund") was organized under the laws of the State of Delaware on December 8,
1987. The Fund will continue until December 31, 2037, unless sooner terminated
under the provisions of the Partnership Agreement. The Fund was formed to
acquire 98.99% of the limited partnership interests in seven limited
partnerships, each of which owns and operates a single nursing center (the
"Facilities").
The Fund's objectives are to (i) preserve Investors' capital; (ii)
obtain capital appreciation through increases in the value of the Facilities;
and (iii) provide quarterly cash distributions to Investors from income
generated by the Facilities' operating income, the income taxation of a portion
of which is anticipated to be deferred.
The General Partners of the Fund are Brown Healthcare, Inc., a Maryland
corporation (the "Administrative General Partner") and Meridian Healthcare
Investments, Inc., a Maryland corporation (the "Development General Partner").
A maximum of 1,540,000 assignee units of limited partnership interests
("Units") were registered under the Securities and Exchange Act of 1933, as
amended. During 1988 all 1,540,000 Units were sold, and the Fund's net proceeds
available for investment aggregated $31,878,000 (gross proceeds of $38,500,000
less public offering expenses and acquisition fees of $6,622,000). The Assignor
Limited Partner also acquired 40 units of limited partnership interests in 1988.
The Fund acquired 98.99% limited partnership interests (the "Operating
Partnership Interests") in the operating limited partnerships which own and
operate seven nursing center facilities. The Facilities include four nursing
centers located in Maryland; two nursing centers located in North Carolina and
one facility in New Jersey. Each operating partnership owns the real and
personal property of its nursing center facility. (See Note 1, "Organization and
Operations", in Item 8, Financial Statements and Supplementary Data, and Item 2.
Properties, herein.)
The Fund acquired the Operating Partnership Interests with offering
proceeds and certain indebtedness.
The nursing centers owned by the operating partnerships are managed by
and purchase drugs, medical supplies and agency nursing and rehabilitation
services from affiliates of the Development General Partner. (See Note 3,
"Related Party Transactions" in Item 8. Financial Statements and Supplementary
Data, herein.)
On November 30, 1993, Genesis Health Ventures, Inc. ("Genesis") acquired
substantially all of the assets of Meridian Inc., Meridian Healthcare, Inc. and
their affiliated entities, including all of the stock of the Development General
Partner. See Item 10. Directors and Executive Officers of Registrant, herein.
The Fund's sole business is its investment in partnerships which own
and operate nursing centers that are healthcare facilities licensed by
individual states to provide long-term healthcare within guidelines established
by the appropriate state health agencies and as directed by each patient's
physician. Healthcare and related services from private pay and Medicaid and
Medicare patients accounted for approximately 99% of revenues during each of the
years in the three-year period ended December 31, 1999.
Healthcare facilities, including those owned by the operating
partnerships, are subject to extensive federal, state and in some cases, local
regulatory licensing and inspection requirements. In addition, government
revenue sources, particularly Medicaid and Medicare programs, are subject to
statutory and regulatory changes due to administrative rulings, interpretations
of policy and determination by fiscal intermediaries, and to government funding
restrictions, all of which may materially affect the rate of program payments to
nursing facilities.
-4-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 1. Business (continued)
The nursing center Facilities face competition with similar facilities
in their general locations as well as the development of other nursing centers
that are able to obtain Certificates of Need and to meet certain other
requirements.
Item 2. Properties
The Fund owns Operating Partnership Interests in operating partnerships
that own four nursing facilities in the State of Maryland, two nursing
facilities in the State of North Carolina, and one nursing facility in New
Jersey. The Facilities are described below:
Property & Equipment Patient
(before depreciaion) Revenues
at December 31, 1999 1999
Name and Location Description (Dollars in thousands)
Facility 1. Hamilton A 104-bed nursing facility located on $ 4,701 $ 4,625
6040 Harford Road 1.06 acres, constructed in 1972
Baltimore City, consisting of a "T" shaped two-story
Maryland plus partial basement masonry structure
containing 22,082 square feet. The facility contains
104 comprehensive care beds of which 14 are
Medicare-certified. There are two private rooms, 15
semi-private rooms, 4 three-person rooms and 15
four-person rooms.
Facility 2. A 250-bed nursing facility located on 11,001 9,226
Randallstown 2.83 acres, constructed in 1971
9109 Liberty Road consisting of a rectangularly-shaped
Randallstown, two-story plus partial basement masonry
Maryland structure containing a total of 72,780
square feet. The facility contains 246 comprehensive
care beds of which 38 are Medicare-certified and
four domiciliary care beds. There are 111
semi-private rooms and 28 private rooms.
Facility 3. Caton Manor A 184-bed nursing facility located on 7,772 8,116
3330 Wilkens Avenue 0.92 acres, constructed in 1972
Baltimore City, consisting of an "L" shaped four-story
Maryland plus basement masonry structure
containing a total of 48,660 square
feet. All 184 beds are comprehensive
care beds of which 20 are
Medicare-certified. All rooms are
semi-private.
-5-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 2. Properties (continued)
Property &Equipment Patient
(before depreciation) Revenues
at December 31, 1999 1999
(Dollars in Thousands)
Name and Location Description
Facility 4. Frederick A 166-bed nursing facility located on 1.13 acres, 7,489 7,038
(Collegeview) originally constructed in 1966 consisting of a
400 North Avenue two-story plus partial basement masonry structure,
Frederick, the second floor added in 1968, containing a total
Maryland of 52,661 square feet. The facility contains 156
comprehensive care beds of which 28 are
Medicare- certified. There are 10 domiciliary
care beds and two non-licensed residential
apartments which are leased to persons who do
not require nursing care.
Facility 5. Mooresville A 160-bed nursing facility located on 11.38 acres, 5,977 6,907
550 Glenwood Road originally constructed with 100 beds in 1988 with
Mooresville, a 60-bed addition completed in 1992 consisting of
North Carolina a one-story slab on grade building containing a
total of 47,657 square feet. The facility
contains 130 beds for skilled care and
intermediate care residents, of which 14 are
Medicare certified. There are 30 beds in the
Home for the Aged (HA) wing. There are 8 private
rooms and 76 semi- private rooms.
Facility 6. Salisbury A 180 bed nursing facility located on 6.02 acres, 5,987 7,972
710 Julian Road originally constructed with 120 beds in 1988 with
Salisbury, a 60-bed addition completed in 1991 consisting of
North Carolina a one-story slab on grade building containing a
total of 50,500 square feet. The facility
contains 160 beds for skilled care and
intermediate care residents, of which 28 are
Medicare certified. There are 20 beds in the
Home for the Aged (HA) wing. There are 16
private rooms and 82 semi- private rooms.
-6-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 2. Properties (continued)
Property &Equipment Patient
(before depreciation) Revenues
at December 31, 1999 1999
(Dollars in Thousands)
Name and Location Description
Facility 7. Woodlands A 140-bed nursing facility located on 6.52 acres, 8,310 7,112
1400 Woodland Avenue constructed in 1989 consisting of a two-story
Plainfield, slab on grade building containing a total of
New Jersey 54,000 square feet. The facility contains 120
comprehensive nursing home beds, of which 27 are
Medicare certified, and 20 residential care
beds. There are 12 private rooms, 46
semi-private rooms and 9 four-bed rooms. The
facility also provides space for a child
day-care program.
$ 51,237 $ 50,996
Item 3. Legal Proceedings
The Fund is a party to litigation arising in the ordinary course of
business. The Fund does not believe the results of such litigation, even if the
outcome is unfavorable to the Fund, would have a material adverse effect on its
consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders for a vote during the
last quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
An established public trading market for the Units does not exist and the Fund
does not anticipate that a public market will develop. Transfer of Units by an
investor and purchase of Units by the Fund may be accommodated under certain
terms and conditions. The Partnership Agreement imposes certain limitations on
the transfer of Units and may restrict, delay or prohibit a transfer primarily
if:
o the transfer of Units would result in 50% or more of all Units having
been transferred by assignment or otherwise within a 12-month period;
o such a transfer would be a violation of any federal or state securities
laws that may cause the Fund to be classified other than as a
partnership for federal income tax purposes;
o such transfers would cause the Fund to be treated as a "publicly traded
partnership" under Sections 7704 and 469(k) of the Internal Revenue
Code; and
o the transfer of Units would cause a technical termination of the
Partnership within meaning of Section 708(b)(1)(A) of the Internal
Revenue Code.
-7-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters (continued)
As of December 31, 1999, there were 1,717 holders of Units of the
registrant, owning an aggregate of 1,540,040 Units, including 40 Units held by
the Assignor Limited Partner. The Fund made four quarterly distributions
totaling approximately $3,306,000 in each of the years in the three-year period
ended December 31, 1999. See Note 5, "Distributions to Partners and Allocation
of Net Income", in Item 8. Financial Statements and Supplementary Data, herein.
Item 6. Selected Financial Data
Years Ended December 31,
1999 1998 1997 1996 1995
(Dollars in thousands - except per Unit amounts)
Statement of Earnings Data
Net revenue $51,278 $54,108 $49,568 $47,885 $45,398
Operating earnings before capital costs** 6,612 9,594 6,286 5,735 5,937
Net earnings 2,865 5,768 2,268 1,722 1,891
Net earnings per assignee Unit-basic $ 1.84 $ 3.71 $ 1.46 $ 1.12 $ 1.23
Operating Data
Payor mix (as a percent of revenue):
Medicaid and Medicare 84% 80% 77% 77% 75%
Private 16% 20% 23% 23% 25%
Occupancy percentage 87.9% 91.7% 93.2% 94.3% 94.8%
Patient Days Available 429,000 429,000 429,000 431,000 430,000
Balance Sheet Data
Total assets $48,646 $50,305 $49,707 $52,255 $51,107
Property and equipment, net of
accumulated depreciation 33,346 33,653 34,839 35,680 36,625
Debt, including loan payable to
Development General Partner 23,742 24,422 25,070 26,576 26,081
Partners' capital 18,372 18,813 16,351 17,389 18,973
Cash distributions paid per Unit:
from operations $2.12 $ 2.12 $ 2.12 $ 2.12 $ 1.88
from return of capital - - - - .24
**Capital costs include depreciation, amortization and interest expense.
-8-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
On March 3, 1998, the Fund entered into a renewal commitment with its
existing lender to refinance all of the existing indebtedness. Under the terms
of the refinancing, the mortgages were scheduled to mature on February 28, 2000.
On February 28, 2000 the Fund executed a three-month extension with the bank and
the existing indebtedness is now scheduled to mature on May 31, 2000. Under the
terms of the extension, the mortgages continue to bear interest at LIBOR plus
1.55%. The Fund's managers have secured a new long-term commitment from a bank
to refinance the existing indebtedness as well as the Fund's $4,000,000 line of
credit (which is designated for working capital needs and is secured primarily
by the accounts receivable of the Fund). The Fund's managers believe the
refinancing will close prior to the May 31, 2000 maturity date.
The Fund's working capital (excluding current portion of long-term
debt) decreased $519,000 to $4,917,000 at December 31, 1999 as compared to
$5,436,000 at December 31, 1998. The Fund has classified its long-term debt as a
current liability on the December 31, 1999 balance sheet as a result of its May
31, 2000 maturity date. The Fund has sufficient liquid assets and other
available credit resources to satisfy its operating expenditures and anticipated
routine capital improvements at each of the seven nursing home facilities.
Cash flow from operating activities was $5,193,000 for the twelve-month
period ended December 31, 1999 as compared to $5,267,000 for the same period of
1998.
Cash used in investing activities for the twelve-month period ended
December 31, 1999 was $1,458,000 and included improvements to the Fund's seven
operating facilities. Similar improvements made during 1998 and 1997 were
$535,000 and $830,000 respectively. The increase in improvements during 1999
versus the two prior years was primarily the result of three roof replacements
(at the Mooresville and Salisbury, North Carolina facilities and at the
Randallstown, Maryland facility) and an exterior renovation to improve the
facade of the College View, Maryland facility.
Cash used in financing activities during 1999 included repayment of
long term debt of $731,000 and distributions to partners and minority interests
totaling $3,421,000. Similar uses of cash totaled $699,000 and $3,380,000,
respectively, during 1998.
The Fund believes that the short-term liquidity needs will be met
through expected cash flow from operations and available working capital from
the existing line of credit. Long-term liquidity needs will be met through
expected cash flow from operations and a refinancing of the existing long-term
indebtedness and line of credit capacity.
Between 1988 and 1999 the Development General Partner loaned the Fund
$597,000 to support operating deficits generated by the Mooresville, Salisbury
and Woodlands nursing centers during each centers' first two years of operation.
Loans outstanding under this arrangement, including interest at 9% per annum,
were $1,137,000 at December 31, 1999. The Fund is obligated to repay these loans
when certain financial criteria are met, the most significant of which is the
payment of a preferred return to the assignee limited partners as defined in the
Fund's partnership agreement.
On February 15, 2000 the Fund made its fourth quarter 1999 distribution
to partners of $826,410. This distribution was funded by fourth quarter 1999
operations and reserves of approximately $168,000. During 1999 operations funded
90% of the distributions to partners while the balance was funded by reserves.
Review of the 2000 budget suggests operations from the seven nursing centers
will be sufficient to fund a similar distribution in 2000.
The major challenge to the Fund in the foreseeable future is to control
operating expenses in light of Medicare's conversion to the Prospective Payment
System, to maintain a quality mix of patients and to increase the overall census
at each of the facilities.
-9-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations
December 31, 1999 versus December 31, 1998
Overall 1999 revenues of $51,278,000 decreased $2,830,000 or 5.2% from
the same period in 1998.
Revenues of $41,031,000 from Medicaid and Medicare patients for the
twelve months ended December 31, 1999 decreased $1,610,000 or 3.7% from the same
period in the prior year. This decrease is primarily due to the settlement of a
Maryland Medicaid reimbursement issue which resulted in the recognition of
approximately $2,100,000 in revenue in fiscal year 1998 which related to cost
report years 1994 through 1997. The Maryland Medicaid auditors proposed audit
adjustments disallowing a portion of the fees paid to the Fund's managers as the
state took the position that the manager was a related party. Upon appeal by the
Fund the State of Maryland determined that the Fund's manager was not a related
party and the fees paid to the manager were reimbursable under the Medicaid
program, subject to the applicable cost center ceilings. Partially offsetting
the decrease in Medicaid revenue was growth in Medicare revenue of approximately
$870,000 relating to growth in Medicare census. In fiscal year 1999 Medicare
census made up 11.5% of the overall census as compared to 9% in fiscal year
1998.
Revenue from private and other patients decreased $1,156,000 to
$9,965,000 in 1999 as compared to $11,121,000 in 1998. This decrease resulted
from lower private and veterans administration census and lower insurance and
assisted living rates. The average daily Private census decreased ten patients
to 105 in 1999 as compared to 115 in 1998. Additionally, the Veterans
Administration (VA) average daily census decreased six patients to two in 1999
as compared to eight in 1998. Revenue from Private and VA sources decreased
approximately $725,000 from 1998 to 1999. Overall rates for insurance residents
decreased approximately 12% as insurance revenue decreased approximately
$200,000 in 1999 as compared to 1998. Assisted living revenue declined
approximately $230,000 primarily due to a decrease in the applicable Medicaid
rates.
Operating expenses increased $214,000 or less than one percent in
fiscal year 1999 as compared to 1998. Salaries wages and benefits increased
$960,000 or approximately 3.6% in fiscal year 1999 as compared to the prior year
primarily driven by annual cost of living increases. Additionally, overall
inflationary increases and higher bad debt charges added additional operating
expense of approximately $1,334,000 or 3.3%. Offsetting these increases was a
decrease in the cost of ancillary services of $2,080,000 in fiscal 1999 compared
to the same period in the prior year. This decrease is primarily due to a
decrease in the cost of Physical, Speech, Occupational and Respiratory
therapies. In response to Medicare's conversion to the Prospective Payment
System contracts with therapy providers were re-negotiated to reduce cost.
Management and administrative fees decreased $154,000 or approximately
4.3% in 1999 as compared to 1998. This decrease is due to fees paid to the
Fund's manager, which are calculated based on net revenues, and are reflective
of the revenue decrease in fiscal year 1999 as compared to 1998 previously
described.
General and administrative costs increased $92,000 in fiscal year 1999
as compared to 1998. This increase is primarily due to an increase in the cost
of purchased services in the dietary and administrative departments, an increase
in the costs of licenses and certifications and increased professional fees
incurred related to the potential sale of the Fund's nursing centers.
Interest expense decreased $125,000 in 1999 as compared to 1998. This
decrease is the result of mortgage refinancing at lower interest rates and the
effect of principal amortization. The refinancing was completed on February 28,
1998.
-10-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations (continued)
December 31, 1998 versus December 31, 1997
Overall revenues for the Fund's seven operating partnerships increased
by approximately $4,540,000 (or 9.2%) for the year ended December 31, 1998 as
compared to the year ended December 31, 1997. This was primarily the result of a
favorable outcome to a long-standing Maryland Medicaid reimbursement issue.
Maryland Medicaid had proposed an audit adjustment reducing the amount of cost
allowed for reimbursement of the fees paid to the Fund's manager as the state
auditor took the position that the manager was a related party. Upon appeal by
the Fund, the State of Maryland determined that the Fund's manager was not a
related party and that fees paid to the manager were reimbursable under the
state Medicaid program subject to the applicable cost center ceilings. The
resolution of this issue provided increased revenues of approximately $800,000
for current year patient services and approximately $2,100,000 for prior year
patient services. A favorable Medicaid cost report settlement in the state of
North Carolina added approximately $350,000 to revenue. A favorable Medicare
settlement for the three prior years resulted in an increase in revenues of
approximately $700,000.
Census declines of approximately 6,500 days, primarily in private and
Medicare, were only partially offset by increases in insurance days. The decline
in census days resulted in a revenue reduction of approximately $1,300,000. Year
to year price increases (exclusive of the Medicaid and Medicare items discussed
above) of approximately 2.3% for Medicaid and 6.0% for Medicare increased
revenue by approximately $1,600,000. Year to year price increases in non-skilled
and intermediate care units increased revenue by $260,000.
Profitability for the Fund increased approximately $3,500,000 (or 150%)
to $5,768,000 in 1998 as compared to $2,268,000 in 1997. Operating expenses as a
percentage of revenue declined to approximately 74% in 1998 versus approximately
80% in 1997 primarily due to the favorable outcome of the reimbursement issues
described above. Operating expenses increased approximately $719,000 (or 1.8%)
during 1998 versus 1997. Cost efficiencies due to a decline in census of 1.6%
were offset by inflationary wages increases and increases in therapy, drug and
medical supply expenses. Management and general and administrative expenses
increased approximately $513,000 principally due to increased management fees
and inflationary changes to general and administrative expenses.
Interest expense decreased approximately $176,000 (or 8.7%) in 1998 as
compared to 1997. This decrease was primarily due to the refinancing at lower
interest rates of the facility mortgages effective February 28, 1998.
Legislative and Regulatory Issues
Legislative and regulatory action has resulted in continuing changes in
the Medicare and Medicaid reimbursement programs. The changes have limited, and
are expected to continue to limit, payment increases under these programs. Also,
the timing of payments made under the Medicare and Medicaid programs is subject
to regulatory action and governmental budgetary constraints; in recent years,
the time period between submission of claims and payment has increased. Within
the statutory framework of the Medicare and Medicaid programs, there are
substantial areas subject to administrative rulings and interpretations which
may further affect payments made under those programs. Further, the federal and
state governments may reduce the funds available under those programs in the
future or require more stringent utilization and quality reviews of eldercare
centers or other providers. There can be no assurances that adjustments from
Medicare or Medicaid audits will not have a material adverse effect on the Fund.
Pursuant to the Balanced Budget Act commencing with cost reporting
periods beginning on July 1, 1998, Prospective Payment System ("PPS") began to
be phased in for skilled nursing facilities at a per diem rate for all covered
Part A skilled nursing facility services as well as many services for which
payment may be made under Part B when a beneficiary who is a resident of a
skilled nursing facility receives covered skilled nursing facility care. The
consolidated per diem rate is adjusted based upon the Resource Utilization Group
("RUG"). In addition to covering skilled nursing facility services, this
consolidated payment will also cover rehabilitation and non-rehabilitation
ancillary services.
-11-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Legislative and Regulatory Issues (continued)
Physician services, certain nurse practitioner and physician assistant
services, among others, are not included in the per diem rate. For the first
three cost reporting periods beginning on or after July 1, 1998, the per diem
rate will be based on a blend of a facility specific rate and a federal per diem
rate. In subsequent periods, and for facilities first receiving payments for
Medicare services on or after October 1, 1995, the federal per diem rate will be
used without any facility specific blending.
The Balanced Budget Act also required consolidated billing for skilled
nursing facilities. Under the Balanced Budget Act, the skilled nursing facility
must submit all Medicare claims for Part A and Part B services received by its
residents with the exception of physician, nursing, physician assistant and
certain related services, even if such services were provided by outside
suppliers. Medicare will pay the skilled nursing facilities directly for all
services on the consolidated bill and outside suppliers of services to residents
of the skilled nursing facilities must collect payment from the skilled nursing
facility. Although consolidated billing was scheduled to begin July 1, 1998 for
all services, it has been delayed until further notice for beneficiaries in a
Medicare Part A stay in a skilled nursing facility not yet using PPS and for the
Medicare Part B stay. There can be no assurance that the Fund will be able to
provide skilled nursing services at a cost below the established Medicare level.
Effective April 10, 1998, regulations were adopted by the Health Care
Financing Administration, which revises the methodology for determining the
reasonable cost for contract therapy services, including physical therapy,
respiratory therapy, occupational therapy and speech language pathology. Under
the regulations, the reasonable costs for the contract therapy services are
limited to geographically-adjusted salary equivalency guidelines. However, the
revised salary equivalency guidelines will no longer apply when the PPS system
applicable to the particular setting for contract therapy services (e.g. skilled
nursing facilities, home health agencies, etc.) goes into effect.
The Balanced Budget Act also repealed the Boren Amendment federal
payment standard for Medicaid payments to Medicaid nursing facilities effective
October 1, 1997. The Boren Amendment required Medicaid payments to certain
health care providers to be reasonable and adequate in order to cover the costs
of efficiently and economically operated health care facilities. States must now
use a public notice and comment period in order to determine rates and provide
interested parties a reasonable opportunity to comment on proposed rates and the
justification for and the methodology used in calculating such rates. There can
be no assurance that budget constraints or other factors will not cause states
to reduce Medicaid reimbursement to nursing facilities and pharmacies or that
payments to nursing facilities and pharmacies will be made on a timely basis.
The law also grants greater flexibility to states to establish Medicaid managed
care projects without the need to obtain a federal waiver. Although these waiver
projects generally exempt institutional care, including nursing facilities and
institutional pharmacy services, no assurances can be given that these projects
ultimately will not change the reimbursement system for long-term care,
including pharmacy services from fee-for-service to managed care negotiated or
capitated rates. The Fund anticipates that federal and state governments will
continue to review and assess alternative health care delivery systems and
payment methodologies.
In July 1998, the Clinton Administration issued a new initiative to
promote the quality of care in nursing homes. This initiative includes, but is
not limited to (I) increased enforcement of nursing home safety and quality
regulations; (ii) increased federal oversight of state inspections of nursing
homes; (iii) prosecution of egregious violations of regulations governing
nursing homes; (iv) the publication of nursing home survey results on the
Internet; and (v) continuation of the development of the Minimum Data Set
("MDS"), a national automated clinical data system.
Accordingly, with this new initiative it may become more difficult for
eldercare facilities to maintain licensing and certification. The Fund may
experience increased costs in connection with maintaining its licenses and
certifications as well as increased enforcement actions. In addition, beginning
January 1, 1999, outpatient therapy services furnished by a skilled nursing
facility to a resident not under a covered Part A stay or to nonresidents who
receive outpatient rehabilitation services will be paid according to the
Medicare Physician Fee Schedule.
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Legislative and Regulatory Issues (continued)
In November 1999, the Medicare Balanced Budget Refinement Act
("Refinement Act") was passed in congress. The Refinement Act addresses certain
reduction in Medicare reimbursement caused by the 1997 Act, including:
o For covered skilled nursing facility services furnished on or after
April 1, 2000, and before October 1, 2000 (or a later date if HCFA does
not complete certain mandated reviews of current RUG weightings), for
15 RUG categories, the federal per diem rate will be increased by 20%;
o For fiscal years 2001 and 2002, the federal per diem rates shall be
increased by an additional 4%;
o For cost report years beginning on or after January 1, 2000, skilled
nursing facilities may waive the PPS transition period and elect to
receive 100% of the federal per diem rate;
o Through the cost reporting period beginning in October, 2000, certain
specific services (such as prostheses and chemotherapy drugs) may be
reimbursed separately from and in addition to the federal per diem
rate; and,
o The elimination of the $1,500 cap on rehabilitation therapy services
provided under Medicare Part B.
Year 2000 Compliance
The Fund did not experience any material interruptions of business as a
result of the Year 2000 computer problem.
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities. The Fund
does not believe this statement will have an impact on the Fund's financial
statements.
Outlook
The major challenge to the Fund in the foreseeable future is to control
operating expenses in light of Medicare's conversion to the Prospective Payment
System, to maintain a quality mix of patients and to increase the overall census
at each of the facilities. Recently, Genesis Health Ventures, Inc. (the parent
company of our Development General Partner) announced its intention to
restructure the company's capital, following its inability to make certain
scheduled debt service payments. This action is not expected to affect the
operation or management of the Fund's seven nursing facilities. We are
continuing to evaluate disposition alternatives and will keep you advised of any
developments.
Item 7a. Quantitative and Qualitative Disclosures About Market Risks
The market risk associated with financial instruments and derivative
financial and commodity instruments is the risk of loss from adverse changes in
market prices or rates. The Fund's market risk arises primarily from interest
rate risk relating to its long-term borrowings which bear interest at LIBOR plus
1.55% of a designated bank. Borrowings are classified as a current liability
since they have a May 31, 2000 maturity date. Assuming that the outstanding
balance were to remain unchanged from that at December 31, 1999 a 1% increase in
the LIBOR rate of interest would reduce the Fund's net earnings by approximately
$226,000 on an annualized basis.
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements:
Page(s)
Annual Report
Independent Auditors' Report 3
Consolidated Balance Sheets 4
Consolidated Statements of Earnings 5
Consolidated Statements of Partners' Capital (Deficit) 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-15
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of Registrant
The General Partners of the Fund are Meridian Healthcare Investments,
Inc., the Development General Partner, and Brown Healthcare, Inc., the
Administrative General Partner. The Fund's principal executive offices are
located at 225 East Redwood Street, Baltimore, Maryland 21202. The General
Partners had primary responsibility for the selection and negotiation of terms
concerning the acquisition of the Operating Partnership Interests, selecting a
manager for the interim investments and the structure of the Offering and the
Fund. The General Partners have primary responsibility for overseeing the
performance of those who contract with the Fund as well as making decisions with
respect to the financing, sale and liquidation of the Fund's or the operating
partnerships' assets. The General Partners are responsible for all reports to
and communications with investors and others, all distributions and allocations
to investors, the administration of the Fund's business and all filings with the
Securities and Exchange Commission and other Federal or State regulatory
authorities. The Fund's Partnership Agreement provides certain rights for
investors, which are incorporated herein by reference.
The Development General Partner
Meridian Healthcare Investments, Inc., the Development General Partner,
is a Maryland corporation. On November 30, 1993, Genesis acquired substantially
all the assets of Meridian, Inc., Meridian Healthcare (" MHC") and their
affiliated entities, including all the stock of the Fund's Development General
Partner. As part of the acquisition, MHC, the manager of the Fund's seven
nursing centers, continues to operate the facilities pursuant to management
agreements. Since completion of the Meridian transaction, Genesis operates
primarily in five regional markets in which over 14,500,000 people over the age
of 65 reside. The networks include 368 eldercare centers with approximately
45,000 beds; approximately 112 physicians, physician assistants and nurse
practitioners; 19 medical supply distribution centers serving over 1,000
eldercare centers with over 80,000 beds; an integrated NeighborCareSM pharmacy
operation with over $980,000,000 in annualized revenues, including 69 long-term
care pharmacies serving approximately 238,000 institutional beds; 34
community-based pharmacies; infusion therapy services; and certified
rehabilitation agencies providing services through over 600 contracts. The
Company also provides diagnostic and hospitality services in selected markets
and operates a group purchasing organization. Genesis has concentrated its
eldercare networks in five geographic regions in order to achieve operating
efficiencies, economies of scale and significant market share. The five
geographic markets that Genesis principally serves are: New England Region
(Massachusetts/Connecticut/New Hampshire/Vermont/Rhode Island); Midatlantic
Region (Greater Philadelphia/Delaware Valley); Chesapeake Region (Southern
Delaware/Eastern Shore of Maryland/Baltimore, Maryland/Washington
D.C./Virginia); Southern Region
-14-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 10. Directors and Executive Officers of Registrant (continued)
The Development General Partner (continued)
(Central Florida); and Allegheny Region (West Virginia/Western Pennsylvania/
Eastern Ohio/Illinois/Wisconsin). The Company believes that it is the largest
operator of eldercare center beds in the states of New Hampshire
Massachusetts, New Jersey, Pennsylvania, Maryland and West Virginia.
The following individuals are the directors and principal officers of
Meridian Healthcare Investments, Inc.:
Michael R. Walker, age 51, is President and a Director of the Development
General Partner and is a co-founder of Genesis and has served as Chairman and
Chief Executive Officer of Genesis since its inception in 1985. In 1998, Mr.
Walker became the Chairman of the Board of Trustees of ElderTrustsm, a
healthcare related real estate investment trust. In 1981, Mr. Walker co-founded
Health Group Care Centers ("HGCC"). At HGCC, he served as Chief Financial
Officer and, later, as President and Chief Operating Officer. Prior to its sale
in 1985, HGCC operated nursing homes with 4,500 nursing beds in 12 states. From
1978 to 1981, Mr. Walker was the Vice President and Treasurer of AID Healthcare
Centers, Inc. ("AID"). AID, which owned and operated 20 nursing centers, was
co-founded in 1977 by Mr. Walker as the nursing home division of Hospital
Affiliates International ("HAI"). Mr. Walker holds a Master of Business
Administration degree from Temple University and a Bachelor of Arts in Business
Administration from Franklin and Marshall College. Mr. Walker serves on the
Board of Directors of Renal Treatment Centers, Inc. and the Board of Trustees of
Universal Health Realty and Income Trust.
Richard R. Howard, age 51, is a Director of the Development General Partner
and has served as a Director of Genesis since its inception in 1985, as
President from June 1986 to November 1998 and as Vice Chairman since November
1998. From June, 1986 through March, 1998, Mr. Howard served as President and
Chief Operating Officer of Genesis. He joined Genesis in September, 1985 as Vice
President of Development. Mr. Howard's background in healthcare includes two
years as the Chief Financial Officer of HGCC. Mr. Howard's experience also
includes over ten years with Fidelity Bank, Philadelphia, Pennsylvania and one
year with Equibank, Pittsburgh, Pennsylvania. Mr. Howard is a graduate of the
Wharton School, University of Pennsylvania, where he received a Bachelor of
Science degree in Economics in 1971.
George V. Hager, Jr., age 44, is Vice President and Treasurer of the
Development General Partner and is Senior Vice President and Chief Financial
Officer of Genesis. Mr. Hager was previously partner in charge of the health-
care practice for KPMG LLP in the Philadelphia office. Mr. Hager began his
career at KPMG LLP in 1979 and has over fifteen years of experience in the
healthcare industry. Mr. Hager received a Bachelor of Arts degree in Economics
from Dickinson College in 1978 and a Master of Business Administration degree
from Rutgers Graduate School of Management. He is a certified public accountant
and a member of the AICPA and PICPA.
Administrative General Partner
Brown Healthcare, Inc., the Administrative General Partner, is a Maryland
corporation, and is wholly-owned by Alex. Brown Realty, Inc. The Administrative
General Partner is responsible for administering the business of the Fund,
including providing clerical services, communications, services and reports to
investors, and making all reports and filings to securities regulatory
authorities.
The following individuals are the directors and principal officers of the
Administrative General Partner:
John M. Prugh, age 51, has been a Director and President of the
Administrative General Partner since 1988, and of Alex. Brown Realty, Inc. and
Armata Financial Corp. since 1984. Mr. Prugh graduated from Gettysburg College
in 1970, and was designated a Certified Property Manager by the Institute of
Real Estate Management in 1979. He has worked in property management for H. G.
Smithy Co., in Washington, D.C., and Dreyfuss Bros., Inc. in Bethesda, Maryland.
Since 1977, Mr. Prugh has been involved in managing, administering, developing
and selling real estate investment projects sponsored by Alex. Brown Realty,
Inc. and its subsidiaries.
-15-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 10. Directors and Executive Officers of Registrant (continued)
The Administrative General Partner (continued)
Peter E. Bancroft, age 47, has been a Director and Vice President of the
Administrative General Partner since 1988 and a Senior Vice President of Alex.
Brown Realty, Inc. and Armata Financial Corp. since 1983. Mr. Bancroft graduated
from Amherst College in 1974, attended the University of Edinburgh, and received
a J.D. degree from the University of Virginia School of Law in 1979. Prior to
joining Alex. Brown Realty, Inc. in 1983, Mr. Bancroft held legal positions with
Venable, Baetjer and Howard and T. Rowe Price Associates, Inc.
Terry F. Hall, age 53, has been the Secretary of the Administrative General
Partner and a Vice President and Secretary of, and Legal Counsel for, Alex.
Brown Realty, Inc. since 1989. Mr. Hall graduated from the University of
Nebraska-Lincoln in 1968, and received a J.D. degree from the University of
Pennsylvania Law School in 1973. Prior to joining Alex. Brown Realty, Inc. in
1986, Mr. Hall was a Partner at the law firm of Venable, Baetjer and Howard from
1981 to 1986 and an associate at the same firm from 1973 to 1981.
Timothy M. Gisriel, age 43, has been the Treasurer of the Administrative
General Partner and of Alex. Brown Realty, Inc. and Armata Financial Corp. since
1990. He was Controller of Alex. Brown Realty, Inc. and Armata Financial Corp.
from 1984 through 1990. Mr. Gisriel graduated from Loyola College in 1978 and
received his Masters of Business Administration degree from the Robert G.
Merrick School of Business, University of Baltimore in 1993. Prior to joining
Alex. Brown Realty, Inc. in 1984, Mr. Gisriel was an audit supervisor in the
Baltimore office of Coopers & Lybrand. He is a Maryland Certified Public
Accountant.
There is no family relationship among the officers and directors of the
General Partner.
Item 11. Executive Compensation
The officers and directors of the Administrative General Partner and
Development General Partner received no compensation from the Fund.
The General Partners are entitled to receive a share of cash
distributions and a share of profits and losses as described in the Agreement of
Limited Partnership. (See Note 5, "Distributions to Partners and Allocation of
Net Income" in Item 8. Financial Statements, herein.)
For a discussion of compensation and fees to which the General Partners
are entitled, see Item 13. Certain Relationships and Related Transactions,
herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person is known to the Fund to own beneficially more than 5% of the
outstanding Units of the Fund.
The General Partners each have a .5% interest in the Fund as General
Partners, but do not hold any Units.
The Assignor Limited Partner, Brown Healthcare Holding Co., Inc., an
affiliate of the Administrative General Partner, owns for its benefit 40 Units.
The Units held by the Assignor Limited Partner have all rights attributable to
such Units under the Limited Partnership Agreement except that these Units are
non-voting.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates have and are permitted to
engage in transactions with the Fund. For a summarization of fees paid during
1999, 1998 and 1997, and to be paid to the General Partners and their affiliates
at December 31, 1999, see Note 3, "Related Party Transactions" in Item 8.
Financial Statements, herein.
-16-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements: see Index to Financial Statements and
Supplementary Data in Item 8 on Page 13.
2. Financial Statement Schedules: Schedule II - Valuation and
Qualifying Accounts for the years ended December 31, 1999, 1998
and 1997. All other schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits:
(3, 4) Limited Partnership Agreement on pages 1 through 41 of
Exhibit A to the Fund's Prospectus, and the Fund's
Registration Statement on Form S-1 (File No. 33-19277)
included herein by reference.
(13) Annual Report for 1999.
(b) Reports on Form 8-K: None.
-17-
Meridian Healthcare Growth and Income Fund Limited Partnership
Independent Auditors' Report
To the Partners of Meridian Healthcare Growth and Income
Fund Limited Partnership
Under date of February 18, 2000, we reported on the consolidated balance sheets
of Meridian Healthcare Growth and Income Fund Limited Partnership as of December
31, 1999 and 1998, and the related consolidated statements of earnings,
partners' capital (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1999, as contained in the annual report on
Form 10K for the year 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule in the Form 10K. This consolidated financial
statement schedule is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audits. In our opinion, such schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 18, 2000
-18-
Meridian Healthcare Growth and Income Fund Limited Partnership
Valuation and Qualifying Accounts
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
Schedule II
Balance at
Beginning Charged to Balance at End
Description of Period Operations Deduction(1) of Period
Year Ended December 31, $479 845 (276) $1,048
Allowance for Doubtful Accounts
Year Ended December 31, $513 252 (286) $479
Allowance for Doubtful Accounts
Year Ended December 31, $551 351 (389) $513
Allowance for Doubtful Accounts
(1) - Represents amounts written off as uncollectible.
-19-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
MERIDIAN HEALTHCARE GROWTH AND INCOME
FUND LIMITED PARTNERSHIP
DATE: 3/29/99 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934 as
amended, this report has been signed by the following in the capacities and on
the dates indicated.
DATE: 3/29/99 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/22/99 By: /s/ Peter E. Bancroft
Peter E. Bancroft
Vice President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/22/99 By: /s/ Terry F. Hall
Terry F. Hall
Secretary
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/18/99 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown-Healthcare, Inc.
Administrative General Partner
-20 -
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
SIGNATURES (continued)
DATE: 3/28/00 By: /s/ Michael R. Walker
Michael R. Walker
President and Director
Meridian Healthcare Investments, Inc.
Development General Partner
DATE: 3/28/00 By: /s/ Richard R. Howard
Richard R. Howard
Director
Meridian Healthcare Investments, Inc.
Development General Partner
DATE: 3/28/00 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Vice President and Treasurer
Meridian Healthcare Investments, Inc.
Development General Partner
-21-