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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, 2000
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, 2000, 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 2000 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
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 9-14
Condition and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 14
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 15-17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management 17
Item 13. Certain Relationships and Related Transactions 17
Part IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 18-20
Signatures 21-22
-2-
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-
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 other patients
and Medicaid and Medicare patients accounted for approximately 99% of revenues
during each of the years in the three-year period ended December 31, 2000.
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.
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.
-4-
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
Name and Location Description (before depreciation) Revenues
at December 31, 2000 2000
(Dollars in thousands)
Facility 1. Hamilton A 104-bed nursing facility located on $ 4,874 $ 5,073
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 27 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 11,438 10,300
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 88 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 8,031 8,991
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 96 are
Medicare-certified. All rooms are
semi-private.
-5-
Item 2. Properties (continued)
Property &Equipment Patient
(before depreciation) Revenues
at December 31, 2000 2000
Name and Location Description (Dollars in Thousands)
Facility 4. Frederick A 166-bed nursing facility located on 1.13 acres, 7,625 7,721
(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 53 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, 6,155 7,457
550 Glenwood Road originally constructed with 100 beds in 1988 with
Mooresville, a 60-bed addition completed in 1992 consisting of a
North Carolina 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 47 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, 6,118 8,399
710 Julian Road originally constructed with 120 beds in 1988 with
Salisbury, a 60-bed addition completed in 1991 consisting of a
North Carolina 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 100 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-
Item 2. Properties (continued)
Property &Equipment Patient
(before depreciation) Revenues
at December 31, 2000 2000
Name and Location Description (Dollars in Thousands)
Facility 7. Woodlands A 140-bed nursing facility located on 6.52 acres, 8,417 7,533
1400 Woodland Avenue constructed in 1989 consisting of a two-story slab
Plainfield, on grade building containing a total of 54,000
New Jersey square feet. The facility contains 120 comprehensive
nursing home beds, of which 20 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.
--------- ---------
$ 52,658 $ 55,474
========= =========
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-
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters (continued)
As of December 31, 2000, there were 1,712 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, 2000. See Note 5, "Distributions to Partners and Allocation
of Net Earnings", in Item 8. Financial Statements and Supplementary Data,
herein.
Item 6. Selected Financial Data
Years Ended December 31,
2000 1999 1998 1997 1996
(Dollars in thousands - except per Unit amounts)
Statement of Earnings Data
Net revenue $55,764 $51,278 $54,108 $49,568 $47,885
Operating earnings before capital costs** 6,710 6,612 9,594 6,286 5,735
Net earnings 2,282 2,865 5,768 2,268 1,722
Net earnings per assignee Unit-basic $ 1.47 $ 1.84 $ 3.71 $ 1.46 $ 1.12
Operating Data
Payor mix (as a percent of revenue):
Medicaid and Medicare 80% 84% 80% 77% 77%
Private 20% 16% 20% 23% 23%
Occupancy percentage 86.2% 87.9% 91.7% 93.2% 94.3%
Patient Days Available 430,000 429,000 429,000 429,000 431,000
Balance Sheet Data
Total assets $49,398 $48,646 $50,305 $49,707 $52,255
Property and equipment, net of
accumulated depreciation 32,934 33,346 33,653 34,839 35,680
Debt, including loan payable to
Development General Partner 24,964 23,742 24,422 25,070 26,576
Partners' capital 17,348 18,372 18,813 16,351 17,389
Cash distributions paid per Unit:
from operations $ 1.69 $ 2.12 $ 2.12 $ 2.12 $ 2.12
from return of capital .43 - - - -
$ 2.12 $ 2.12 $ 2.12 $ 2.12 $ 2.12
**Capital costs include depreciation, amortization and interest expense.
-8-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Fund closed its mortgage loan refinancing with a new bank for loans
totaling $24,000,000 on June 12, 2000. The renewal terms became effective on
June 12, 2000 and provide for a term of five years at an interest rate of 9.75%.
Monthly payments are based on a 25-year amortization schedule with a balloon
payment due at the end of the 5-year term. Following the repayment of the
original loan and transaction costs, the new loan resulted in refinancing
proceeds of approximately $1,225,000 which were designated to fund certain
improvements to the nursing facilities.
The Fund also replaced its $4,000,000 line of credit facility with the
same lender under terms similar to the mortgage loan terms described above.
The Fund's working capital (excluding the current portion of long-term
debt) increased $525,000 to $5,442,000 at December 31, 2000 as compared to
$4,917,000 at December 31, 1999. 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 $2,640,000 for the year ended
December 31, 2000 as compared to $5,193,000 during 1999. The decrease in cash
flow was due primarily to increased receivables and estimated third-party payor
settlements, net, of $2,873,000 during 2000.
Cash used from investing activities during 2000 was $1,421,000 and
included improvements to the Fund's seven operating facilities. Similar
improvements of $1,458,000 and $535,000 were made during 1999 and 1998,
respectively.
Cash flows from financing activities during 2000 included proceeds from
the issuance of the Fund's new long-term debt of $24,000,000, repayment of long
term debt of $22,829,000, new loan acquisition costs of $429,000 and
distributions to partners and minority interests totaling $3,364,000.
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.
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 $1,188,000 at December 31, 2000.
On February 15, 2001 the Fund made its fourth quarter 2000 distribution
to partners of $826,410. This distribution was funded by fourth quarter 2000
operations and reserves of approximately $403,000. During 2000 operations funded
approximately 80% of the distributions to partners while the balance was funded
by reserves provided by the refinancing of the Fund's long-term debt. Review of
the 2001 budget suggests operations from the seven nursing centers will be
sufficient to fund a similar distribution in 2001.
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-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations
December 31, 2000 versus December 31, 1999
Overall 2000 revenues of $55,764,000 increased $4,486,000 or 8.7% from
the same period in 1999.
Revenues of $44,514,000 from Medicaid and Medicare patients for the
twelve months ended December 31, 2000 increased $3,483,000 or 8.5% from the same
period in the prior year. This increase is primarily the result of Medicaid rate
increases and an increase in the number of Medicare days. Medicaid revenue
increased $1,978,000 primarily due to overall rate increases of approximately
11.1% driven primarily by the four Maryland centers. The Maryland centers
received a rate adjustment in October 1999, which was implemented to reflect a
modification to the state reimbursement program, and their annual rate
adjustment was received in July 2000. Medicare revenue increased $1,505,000
relating to growth in Medicare census. In fiscal year 2000 Medicare census made
up 12.8% of the overall census as compared to 11.5% in fiscal year 1999.
Revenues from private and other patients increased $995,000 to
$10,960,000 as compared to $9,965,000 in 1999. This increase is a result of
higher insurance census and rates and higher private rates. In fiscal year 2000,
insurance census made up 3.1% of the overall census as compared to 2.8% in
fiscal year 1999. Insurance rates increased 14.8% and private rates increased
6.3% resulting in additional revenue of approximately $395,000 and $386,000,
respectively.
Operating expenses increased $4,109,000 or 10.2% from the same period
in the prior year. This increase is primarily due to the increased cost of
nursing services and ancillary costs. Nursing costs increased $1,937,000 for the
twelve months ended December 31, 2000 as compared to the same period in 1999.
This increase is primarily due to increases in salary and wages and the
increased utilization of temporary nurse staffing. Salary and wage expense for
nurses increased $575,000, and temporary nurse staffing expense increased
$1,078,000 for the twelve months ended December 31, 2000 compared to the same
period in the prior year. The increase in nursing salary and wages and
utilization of temporary nurse staffing is a result of an overall shortage of
nurses within the healthcare industry. Ancillary expenses increased $1,395,000
or 24.9% for the twelve months ended December 31, 2000 as compared to the same
period in 1999. This increase is primarily due to the increase in the Medicare
census and the increased utilization of Part B ancillary services. The remaining
increase in operating costs is due to increased health insurance costs, and
general inflationary cost increases.
Management and administrative fees increased $261,000 or approximately
7.7% in 2000 as compared to 1999. This increase is due to fees paid to the
Fund's manager, which are calculated as a percentage of net revenues, and are
reflective of the revenues increase in fiscal year 2000 as compared to 1999.
Depreciation and amortization expense increased $203,000 in fiscal year
2000 as compared to fiscal year 1999. This increase is due primarily to the
amortization of fees incurred of $134,000 for the extension of the existing
mortgage and fees associated with refinancing of the mortgage.
Interest expense increased $478,000 in fiscal year 2000 as compared to fiscal
year 1999. This increase is the result of higher variable interest rates during
the year coupled with the refinancing which resulted in a larger principal
balance $24,000,000 and a higher interest rate. The refinancing became effective
June 12, 2000.
-10-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations (continued)
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.
-11-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Legislative and Regulatory Issues
Congress has enacted three major laws during the past five years that
have significantly altered payment for nursing home services. The Balanced
Budget Act of 1997 ("the 1997 Act"), signed into law on August 5, 1997, reduced
federal spending on the Medicare and Medicaid programs. The Medicare Balanced
Budget Refinement Act ("BBRA"), enacted in November 1999 addressed a number of
the funding difficulties caused by the 1997 Act. A second enactment, the
Benefits Improvement and Protection Act of 2000 ("BIPA"), was enacted on
December 15, 2000, further modifying the law and restoring additional funding.
Under the 1997 Act, participating skilled nursing facilities are
reimbursed under a prospective payment system ("PPS") for inpatient Medicare
covered services. The PPS system commenced with a facility's first cost
reporting period beginning on or after July 1, 1998. Under PPS, nursing
facilities are paid a predetermined amount per patient, per day ("per diem")
based on the anticipated costs of treating patients. The per diem rate is
determined by classifying each patient into one of forty-four resource
utilization groups ("RUG") using the information gathered during the minimum
data set ("MDS") assessment. There is a separate per diem rate for each of the
RUG classifications. The per diem rate also covers rehabilitation and
non-rehabilitation ancillary services. The law phased in PPS over a three-year
period. PPS reimbursement is based largely on a nursing facility's costs for the
services it provided to Medicare beneficiaries in the 1994-1995 base year.
As implemented by HCFA, PPS has had an adverse impact on the Medicare
revenues of many skilled nursing facilities. There have been three primary
problems. First, the base year calculations understate costs. Second, the market
basket index used to trend payments forward does not adequately reflect market
experience. Third, the RUGs case mix allocation is not adequately predictive of
the costs of care for patients, and does not equitably allocate funding,
especially for non-therapy ancillary services.
In November 1999, the BBRA was passed in Congress. This enactment
provided relief for certain reductions in Medicare reimbursement caused by the
1997 Act. For covered skilled nursing facility services furnished on or after
April 1, 2000, the federal per diem rate was increased by 20% for 15 RUG payment
categories. While this provision was initially expected to adjust payment rates
for only six months, HCFA withdrew proposed RUG refinement rules. These payment
add-ons will continue until HCFA completes certain mandated recalculations of
current RUG weightings. For fiscal years 2001 and 2002, the BBRA mandated
federal per diem rates for all RUG categories be increased by an additional 4%
over the required market basket adjustment. The law provided that certain
specific services (such as prostheses and chemotherapy drugs) would be
reimbursed separately from and in addition to the federal per diem rate. A
provision was included that provided that for cost report years beginning on or
after January 1, 2000, skilled nursing facilities could waive the PPS transition
period and elect to receive 100% of the federal per diem rate. The enactment
also lifted for two years the $1,500 cap on rehabilitation therapy services
provided under Medicare Part B.
On December 15, 2000 Congress passed BIPA that, among other provisions,
increases the nursing component of Federal PPS rates by approximately 16.7% for
the period from April 1, 2001 through September 30, 2002. The legislation will
also change the 20% add-on to 3 of the 14 rehabilitation RUG categories to a
6.7% add-on to all 14 rehabilitation RUG categories beginning April 1, 2001. The
Part B consolidated billing provision of BBRA will be repealed except for
Medicare Part B therapy services and, the moratorium on the $1,500 therapy caps
will be extended through calendar year 2002. The Fund has not yet evaluated what
effect BIPA will have on its operating results.
The 1997 Act included several provisions affecting Medicaid. The 1997
Act repealed the "Boren Amendment" federal payment standard for Medicaid
payments to nursing facilities effective October 1, 1997. The Boren Amendment
required that Medicaid payments to certain health care providers be reasonable
and adequate in order to cover the costs of efficiently and economically
operated healthcare facilities. Under the 1997 Act, states must now use a public
notice
-12-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Legislative and Regulatory Issues (continued)
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. With the repeal of the
Federal payment standards, there can be no assurances 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 timely basis. The 1997 Act also grants greater flexibility to
states to establish Medicaid managed care projects without the need to obtain a
federal waiver. Although these projects generally exempt institutional care,
including nursing facilities, no assurances can be given that these projects
ultimately will not change the reimbursement methodology for nursing facility
services from fee-for-service to managed care negotiated or capitated rates. We
anticipate that federal and state governments will continue to review and assess
alternative health care delivery systems and payment methodologies.
Congress and state governments continue to focus on efforts to curb
spending on health care programs such as Medicare and Medicaid. We cannot at
this time predict the extent to which these proposals will be adopted or, if
adopted and implemented, what effect, if any, such proposals will have on the
Fund. Efforts to impose reduced allowances, greater discounts and more stringent
cost controls by government and other payors are expected to continue.
Our business is subject to extensive federal, state and, in some cases,
local regulation with respect to, among other things, licensure, certification
and health planning. These regulations relate, among other things, to the
adequacy of physical plant and equipment, qualifications of personnel, standards
of care and operational requirements. Compliance with such regulatory
requirements, as interpreted and amended from time to time, can increase
operating costs and thereby adversely affect the financial viability of our
business. Failure to comply with current or future regulatory requirements could
also result in the imposition of various remedies including fines, restrictions
on admission, the revocation of licensure, decertification, imposition of
temporary management or the closure of the facility.
In July 1998, the Clinton administration issued a new initiative to
promote the quality of care in nursing homes. Following this pronouncement, it
has become more difficult for nursing facilities to maintain licensing and
certification. We have experienced and expect to continue to experience
increased costs in connection with maintaining our licenses and certifications
as well as increased enforcement actions.
All of our Facilities, to the extent required, are licensed under
applicable law and are certified or approved as providers under one or more of
the Medicaid and Medicare programs. Licensing, certification and other
applicable standards vary from jurisdiction to jurisdiction and are revised
periodically. State and local agencies survey all skilled nursing centers on a
regular basis to determine whether such centers are in compliance with
governmental operating and health standards and conditions for participation in
government sponsored third party payor programs. We believe that our Facilities
are in substantial compliance with the various Medicare, Medicaid and state
regulatory requirements applicable to them. However, in the ordinary course of
our business, we receive notices of deficiencies for failure to comply with
various regulatory requirements. The Fund reviews such notices and takes
appropriate corrective action. In most cases, the Fund and the reviewing agency
will agree upon the measures to be taken to bring the center into compliance
with regulatory requirements. In some cases or upon repeat violations, the
reviewing agency may take various adverse actions against a provider, including
but not limited to:
o the imposition of fines;
o suspension of payments for new admissions to the center;
o in extreme circumstances, decertification from participation in the
Medicare or Medicaid programs and revocation of a center's license.
-13-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Legislative and Regulatory Issues (continued)
These actions may adversely affect a nursing facility's ability to
continue to operate, the ability to provide certain services, and / or
eligibility to participate in the Medicare or Medicaid programs or to receive
payments from other payors. Additionally, actions taken against one center may
subject other centers under common control or ownership to adverse remedies.
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.
On June 22, 2000, Genesis Health Ventures, Inc. (Genesis) and certain
of its subsidiaries and affiliates filed petitions for Chapter 11 bankruptcy
protection with the U.S. Bankruptcy Court in Wilmington, Delaware. Meridian
Healthcare Inc. which manages the Fund's nursing centers under the terms of the
management agreements, is a wholly-owned subsidiary of Genesis and was named as
a debtor affiliate in the bankruptcy filing. Certain other subsidiaries of
Genesis which supply the Fund's nursing centers with drugs, medical supplies,
and other services were also included in the bankruptcy filing. The Genesis
bankruptcy filing has not had an impact on the Fund's operations, results of
operations or financial position.
Item 7a. Quantitative and Qualitative Disclosures About Market Risks
The Fund has exposure to changing interest rates and is currently not
engaged in hedging activities. Interest on the Fund's $23.8 million mortgage is
at a fixed rate of 9.75%.
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 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.
-14-
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. Genesis operates primarily in five regional markets in which over
11,400,000 people over the age of 65 reside. The networks include 317 eldercare
centers with approximately 39,400 beds; approximately 112 physicians, physician
assistants and nurse practitioners; 23 medical supply distribution centers
serving over 1,000 eldercare centers with over 80,000 beds; an integrated
NeighborCareSM pharmacy operation with over $1,050,000,000 in annualized
revenues, including 61 long-term care pharmacies serving approximately 253,000
institutional beds; 32 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/New Jersey); Chesapeake
Region (Southern Delaware/Eastern Shore of Maryland/Baltimore,
Maryland/Washington D.C./Virginia); Southern Region (Central Florida);and
Allegheny Region (West Virginia/Western Pennsylvania/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 52, 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.
-15-
Item 10. Directors and Executive Officers of Registrant (continued)
The Development General Partner (continued)
Richard R. Howard, age 52, 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 45, is Vice President and Treasurer of the
Development General Partner and is Executive 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 eighteen 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 52, 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 Dreyfus 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.
Peter E. Bancroft, age 48, 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 54, 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.
-16-
Item 10. Directors and Executive Officers of Registrant (continued)
The Administrative General Partner (continued)
Timothy M. Gisriel, age 44, 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
2000, 1999, and 1998, and to be paid to the General Partners and their
affiliates at December 31, 2000, see Note 3, "Related Party Transactions" in
Item 8. Financial Statements, herein.
-17-
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, 2000, 1999
and 1998. 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 2000.
(b) Reports on Form 8-K: None.
-18-
INDEPENDENT AUDITORS REPORT
To the Partners of
Meridian Healthcare Growth and
Income Fund Limited Partnership
Under date of February 16, 2001, we reported on the consolidated balance sheets
of Meridian Healthcare Growth and Income Fund Limited Partnership (the Fund) as
of December 31, 2000 and 1999, and the related consolidated statements of
earnings, partners' capital and cash flows for each of the years in the
three-year period ended December 31, 2000, as contained in the annual report on
Form 10K for the year 2000. 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.
KPMG LLP
Philadelphia, Pennsylvania
February 16, 2001
-19-
Meridian Healthcare Growth and Income Fund Limited Partnership
Valuation and Qualifying Accounts
Years Ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
Schedule II
Balance at Beginning Charged to Balance at End
Description of Period Operations Deductions(1) of Period
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2000 $1,048 904 (707) $1,245
Allowance for Doubtful Accounts
Year Ended December 31, 1999 $479 845 (276) $1,048
Allowance for Doubtful Accounts
Year Ended December 31, 1998 $513 252 (286) $ 479
Allowance for Doubtful Accounts
(1) - Represents amounts written off as uncollectible.
-20-
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: 3/15/01 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: 3/15/01 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/23/01 By: /s/ Peter E. Bancroft
Peter E. Bancroft
Vice President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/15/01 By: /s/ Terry F. Hall
Terry F. Hall
Secretary
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/15/01 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown-Healthcare, Inc.
Administrative General Partner
-21-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
SIGNATURES (continued)
DATE: 3/26/00 By: /s/ Michael R. Walker
Michael R. Walker
President and Director
Meridian Healthcare Investments, Inc.
Development General Partner
DATE: 3/26/00 By: /s/ Richard R. Howard
Richard R. Howard
Director
Meridian Healthcare Investments, Inc.
Development General Partner
DATE: 3/26/00 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Vice President and Treasurer
Meridian Healthcare Investments, Inc.
Development General Partner
-22-