Item 1. Business (continued)
Description of the Fund's 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.
Revenue Sources
The Fund receives revenues from Medicare, Medicaid, private insurance, self-pay residents, and other third party payors. The sources and amounts of the Fund's revenues are determined by a number of factors, including licensed bed capacity and occupancy rates of its eldercare centers, the mix of patients and the rates of reimbursement among payors. Changes in the acuity of the patients as well as payor mix among Medicare, Medicaid and private pay can significantly affect the Fund's profitability.
Medicare and Medicaid
The Health Insurance for Aged and Disabled Act (Title XVIII of the Social Security Act), known as "Medicare," has made available to nearly every United States citizen 65 years of age and older a broad program of health insurance designed to help the nation's elderly meet hospital and other healthcare costs. The Medicare program consists of four parts: (i) Medicare Part A, which covers, among other things, inpatient hospital, skilled long-term care, home healthcare and certain other types of healthcare services; (ii) Medicare Part B, which covers physicians' services, outpatient services and certain items and services provided by medical suppliers; (iii) a managed care option for beneficiaries who are entitled to Medicare Part A and enrolled in Medicare Part B, known as Medicare Advantage or Medicare Part C and (iv) a new Medicare Part D benefit that becomes effective in 2006 covering prescription drugs. Under Medicare Part B, the Fund is entitled to payment for medically necessary therapy services and products that replace a bodily function (i.e., ostomy supplies), home medical equipment and supplies and a limited number of specifically designated prescription drugs. The Medicare program is administered by the Centers for Medicare and Medicaid Services (CMS).
Medicaid (Title XIX of the Social Security Act) is a federal-state matching program, whereby the federal government, under a need based formula, matches funds provided by the participating states for medical assistance to "medically indigent" persons. The programs are administered by the applicable state welfare or social service agencies under federal rules. Although Medicaid programs vary from state to state, traditionally they have provided for the payment of certain expenses, up to established limits, at rates determined in accordance with each state's regulations. For skilled nursing centers, most states pay prospective rates, and have some form of acuity adjustment. In addition to facility based services, most states cover an array of medical ancillary services. Payment methodologies for these services vary based upon state preferences and practices permitted under federal rules.
State Medicaid programs generally have long-established programs for reimbursement which have been revised and refined over time. Any future changes in such reimbursement programs or in regulations relating thereto, such as reductions in the allowable reimbursement levels or the timing of processing of payments, could adversely affect our business. The annual increase in the federally matched funds could vary from state to state based on a variety of factors. Additionally, any shift from Medicaid to state designated managed care plans could adversely affect our business.
Medicare and Medicaid are subject to statutory and regulatory changes, retroactive rate adjustments, administrative rulings and government funding restrictions, all of which may materially affect the timing and/or levels of payments to us for our services.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 1. Business (continued)
Revenue Sources (continued)
Medicare and Medicaid (continued)
The Fund is subject to periodic audits by the Medicare and Medicaid programs, which have various rights and remedies against us if they assert that the Fund has overcharged the programs or failed to comply with program requirements. These rights and remedies may include requiring the repayment of any amounts alleged to be overpayments or in violation of program requirements, or making deductions from future amounts due to us. Such programs may also impose fines, criminal penalties or program exclusions. Other third-party payor sources also reserve rights to conduct audits and make monetary adjustments in connection with or inclusive of auditing activities.
Laws Affecting Medicare Revenues
Participating skilled nursing facilities are reimbursed under a prospective payment system for inpatient Medicare covered services. The prospective payment system commenced with a facility's first cost reporting period beginning on or after July 1, 1998 and phased in over a three-year period. Under the prospective payment system, or PPS, skilled nursing facilities are paid a predetermined amount per patient, per day or "per diem" based on the anticipated costs of treating patients. The per diem rate is determined by classifying each patient into one of 44 resource utilization groups (RUGS III) using the information gathered as a result of each patient's minimum data set assessment. There is a separate per diem rate for each of the resource utilization group classifications. The per diem rate also covers rehabilitation and non-rehabilitation ancillary services.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003, referred to as the Medicare Modernization Act or the MMA, signed into law by the President on December 8, 2003, may have an impact on institutional services. The law constitutes a significant overhaul of the Medicare system, including provisions to provide subsidies to insurers and managed care organizations and establishes mechanisms to allow private healthcare coverage plans to compete with Medicare initially on a pilot basis.
Effective January 1, 2006, under the MMA, Medicaid coverage of prescription drugs for Medicare beneficiaries who are also eligible for Medicaid will be shifted to the Medicare program. These residents are referred to as "dual eligibles." This change could affect a significant percentage of residents in our nursing facilities.
As a result of shifting prescription drug coverage from Medicaid to Medicare through such private plans, the MMA could affect the ability of long term care pharmacies to provide pharmacy service to our residents. Currently, under contract, NeighborCare Inc. provides services required by federal law for residents of our facilities and are reimbursed primarily through the Medicaid program. However, it has not yet been determined whether these new private plans will be required to contract with long term care pharmacies, and the Fund does not yet know whether payment rates for the prescription drugs provided by these plans will be sufficient to cover the costs of the pharmacy needs of nursing home residents.
The MMA covers most prescription drugs, insulin and certain insulin supplies, and approved vaccines. However, certain drugs are excluded from coverage under the new Medicare benefit in Part D, including several drugs that are commonly prescribed for nursing home and other long term care residents.
The Fund has described only certain provisions of the Medicare Modernization Act applicable to its business. There may be other provisions of the legislation that may impact its business by decreasing revenues or increasing operational expenses. The Fund can make no assurance as to the effect of these provisions on its business.
On July 30, 2004, CMS published notice of the fiscal year 2005 prospective payment system rates that became effective October 1, 2004. The fiscal year 2005 rules provide for a 2.8% market basket increase. CMS affirms that its contractor, the Urban Institute, has completed its study of the skilled nursing payment system in an effort to explore both short-term and long-term solutions to its case mix methodology. It is the Fund's understanding the report is in final CMS review and that its recommendations will be considered as part of the proposed fiscal year
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 1. Business (continued)
Revenue Sources (continued)
Laws Affecting Medicare Revenues (continued)
2006 rules, effective October 1, 2005. The Fund refers to the anticipated refinement to the resource utilization group classification system as "RUGs refinement." Although the Fund is unable to predict with certainty the extent of the impact of RUGs refinement on its operating results, the Fund believes it could result in a significant reduction in its revenues and profitability.
Laws Affecting Medicaid Revenues
State budget pressures in recent years have translated into reductions in state spending in certain jurisdictions. Given that Medicaid outlays are a significant component of state budgets, the Fund expects continuing cost containment pressures on Medicaid outlays for skilled nursing facilities in the states in which it operates. In each of the major states where the Fund provides services, its manager is working with trade groups, consultants and government officials to responsibly address the particular funding issues.
The plight of state governments has helped to elevate issues related to Medicaid onto the national agenda. In 2003, Congress passed temporary relief to states providing a 2.9% temporary increase in the Federal Medicaid Assistance Percentage for five quarters estimated to provide states $10 billion in Medicaid relief. That assistance terminated on June 30, 2004. The President's Budget for 2006 also calls for reductions Medicaid State Funding such as reduction in revenue achieved through provider assessments. Actions to date on state Medicaid budgets affirm that many states are adjusting state Medicaid spending downward to reflect the loss of the temporary Federal assistance.
A number of states have enacted state legislation authorizing a provider assessment. Under current law, if such assessments meet specific regulatory tests, they are eligible for federal matching funds. Before such plans can be implemented, they must be reviewed and approved by CMS, the federal agency responsible for Medicaid. CMS has slowed the processing of a number of the state requests, especially those that require federal waiver authority. Recent developments suggest that CMS is attempting to negotiate with states on the specific provisions of state plans. Thus, it is unclear whether successful efforts to secure state legislative and regulatory approvals of provider assessments will necessarily lead to CMS approvals. It is unclear whether the delayed implementation might cause states to abandon provider assessment initiatives and/or to seek alternative ways to secure budget projections. Nursing home provider assessments have been implemented in one state where the Fund operates (North Carolina). Subsequent to the Fund's fiscal year ended December 31, 2004, a provider assessment program was finalized in the state of New Jersey. The Fund expects the implementation of the New Jersey provider assessment to have a positive impact on its financial condition and results of operations.
It is not possible to fully quantify the effect of potential legislative or regulatory changes, the administration of such legislation or any other governmental initiatives on the Fund's business. Accordingly, there can be no assurance that the impact of these changes or any future healthcare legislation will not further adversely affect the Fund's business. There can be no assurance that payments under governmental and private third party payor programs will be timely, will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. The Fund's financial condition and results of operations may be affected by the reimbursement process, which in the healthcare industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 1. Business (continued)
Legislative and Regulatory Issues
General
The Fund's business is subject to extensive federal, state and, in some cases, local regulation with respect to, among other things, licensure, certification and health planning. This regulation relates, 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.
Licensure, Certification and Regulation
All of the Fund's centers, to the extent required, are licensed under applicable law. All skilled nursing centers or practitioners providing the services therein, 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. The Fund believes that its eldercare centers and other sites of service are in substantial compliance with the various Medicare, Medicaid and state regulatory requirements applicable to them. However, in the ordinary course of our business, the Fund receives 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, the reviewing agency may take various adverse actions against a provider, including but not limited to the imposition of fines; suspension of payments for all or new admissions to the center, and in extreme circumstances, decertification from participation in the Medicare or Medicaid programs and revocation of a center's or site of service's license. These actions may adversely affect a center's ability to continue to operate, ability to provide certain services, and/or eligibility to participate in the Medicare or Medicaid programs or to receive payments from other payors.
The Fund's centers are currently certified to receive benefits provided under Medicare. Additionally, all of the Fund's skilled nursing centers are currently certified to receive benefits under Medicaid. Both initial and continuing qualifications of a skilled nursing center to participate in such programs depend upon many factors including accommodations, equipment, services, patient care, safety, personnel, physical environment, and adequate policies, procedures and controls.
Laws Affecting Billing and Billing Practices
The Fund is also subject to federal and state laws that govern financial and other arrangements between healthcare providers. These laws often prohibit certain direct and indirect payments or fee-splitting arrangements between healthcare providers that are designed to induce or encourage the referral of patients to, or the recommendation of, a particular provider for medical products and services. These laws include:
o the "anti-kickback" provisions of the federal Medicare and Medicaid programs, which prohibit, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate) directly or indirectly in return for or to induce the referral of an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under Medicare or Medicaid; and
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 1. Business (continued)
Legislative and Regulatory Issues (continued)
Laws Affecting Billing and Billing Practices (continued)
o the "Stark laws" which prohibit, with limited exceptions, the referral of patients by physicians for certain services, including home health services, physical therapy and occupational therapy, to an entity in which the physician has a financial interest.
Laws Governing Health Information
The Fund faces additional federal requirements that mandate major changes in the transmission and retention of health information. The Health Insurance Portability and Accountability Act of 1996 was enacted to ensure, first, that employees can retain and at times transfer their health insurance when they change jobs, and secondly, to simplify health care administrative processes. This simplification includes expanded protection of the privacy and security of personal medical data and requires the adoption of standards for the exchange of electronic health information. Among the standards that the Department of Health and Human Services may adopt pursuant to the Health Insurance Portability and Accountability Act are standards for the following: electronic transactions and code sets; unique identifiers for providers, employers, health plans and individuals; security and electronic signatures; privacy; and enforcement.
Although the Health Insurance Portability and Accountability Act was intended to ultimately reduce administrative expenses and burdens faced within the healthcare industry, the Fund believes that implementation of this law will result in additional costs. Genesis, the Fund's manager, has established a Health Insurance Portability and Accountability Act task force consisting of clinical, financial and information services professionals focused on the Health Insurance Portability and Accountability Act compliance.
The Department of Health and Human Services has released three rules to date mandating the use of new standards with respect to certain health care transactions and health information. The first rule establishes uniform standards for common health care transactions, including:
o Health care claims information;
o plan eligibility, referral certification and authorization;
o claims status;
o plan enrollment and disenrollment;
o payment and remittance advice;
o plan premium payments; and
o coordination of benefits.
Second, the Department of Health and Human Services has released standards relating to the privacy of individually identifiable health information. These standards not only require the Fund's compliance with rules governing the use and disclosure of protected health information, but they also require us to impose those rules, by contract, on any business associate to whom it discloses information. Third, the Department of Health and Human Services has released rules governing the security of health information maintained or transmitted in electronic form.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 1. Business (continued)
Legislative and Regulatory Issues (continued)
The Department of Health and Human Services finalized the transaction standards on August 17, 2000. The Department of Health and Human Services issued the privacy standards on December 28, 2000, and, after certain delays, they became effective on April 14, 2001, with a compliance date of April 14, 2003. On February 20, 2003, the Department of Health and Human Services issued final rules governing the security of health information. These rules specify a series of administrative, technical and physical security procedures to assure the confidentiality of electronic protected health information. Affected parties will have until April 20, 2005 to be fully compliant. Sanctions for failing to comply with HIPAA health information practices provisions include criminal penalties and civil sanctions.
In January 2004, CMS announced the adoption of the National Provider Identifier as the standard unique health identifier for health care providers to use in filing and processing health care claims and other transactions. The rule is effective May 23, 2005.
At this time, the Fund's manager anticipates that the Fund will be able to fully comply with those HIPAA requirements that have been adopted.
It is not possible to fully quantify the effect of recent legislation, the interpretation or administration of such legislation or any other governmental initiatives on the Fund's business. Accordingly, there can be no assurance that the impact of these changes or any future healthcare legislation will not adversely affect the Fund's business. There can be no assurance that payments under governmental and private third party payor programs will be timely, will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. The Fund's financial condition and results of operations may be affected by the reimbursement process, which in our industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 2.
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 Fund believes that its physical properties are well maintained and are in suitable condition for the conduct of its business. The Facilities are described below:
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 2. Properties (continued)
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 3.
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.
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.
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.
As of December 31, 2004, there were 1,614 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 $2,333,000 in fiscal year end December 31, 2004, $2,187,000 in 2003 and $ 3,306,000 in 2002. See Note 5, "Distributions to Partners and Allocation of Net Earnings", in Item 8. Financial Statements and Supplementary Data, herein.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 6.
Item 6. Selected Financial Data
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
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 Facilities include four nursing centers located in Maryland; two nursing centers located in North Carolina and one nursing center in New Jersey. Each operating partnership owns the real and personal property of its nursing center facility.
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.
The major challenge to the Fund in the foreseeable future is to control operating expenses, to maintain a quality mix of patients and to increase the overall census at each of the facilities.
The aging of the population and increased life expectancies are the primary driving forces behind the growth of the Fund's businesses. The Fund's management believes that positive demographic trends imply that there will be a growing demand for the services offered by healthcare providers that deliver the most efficient, responsive, cost effective and high quality eldercare services.
Management of the Fund is continually engaged in various efforts to improve profitability by focusing on key operational initiatives, including: improving the quality of the Fund's payor mix, increasing the Fund's rate of occupancy, improving nursing staff scheduling and retention, reducing reliance on overtime compensation and temporary nursing agency services, and capitalizing on best demonstrated practices in various areas of cost control. As a result, the Fund's management believes the Fund will be well positioned to take advantage of the favorable demographic and growth trends in its industry.
Government funded programs, principally Medicaid and Medicare, provide approximately 84% of the Fund's revenue. Over the past five years, changes in funding from these government sources has had a significant impact on the Fund's cash flows and profitability. Through trade and other organizations, the Fund's manager actively participates in partnership with other healthcare providers to pursue strategies to minimize any potentially adverse impact of government funding proposals. The Fund's management believes the continuation of government funding at levels sufficient to profitably operate the Fund's business is its greatest financial risk.
Labor costs, including salaries, wages and benefits, account for a significant portion of the Fund's total operating expenses. The Fund competes with other healthcare providers and with non-healthcare providers for both professional and non-professional employees. In recent years, the Fund and the long-term care industry have experienced shortages in qualified professional clinical staff. While the Fund has been able to retain the services of an adequate number of qualified personnel to staff its facilities and sites of services, it has used expensive temporary nursing agency services to supplement staffing. If a shortage of nurses or other health care workers occurred in the geographic areas in which the Fund operates, it could adversely affect its ability to attract and retain qualified personnel and could further increase its operating costs, without a corresponding increase in the level of government funded reimbursement.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Certain Transactions and Events
On February 11, 2005 the Fund entered into an Asset Purchase Agreement for the sale of the seven nursing facilities and on February 22, 2005 the Purchaser escrowed its required $1,000,000 good faith deposit under this Agreement. The purchase price per the Agreement is $50,000,000. Under the terms of the Agreement and assuming the consent of the holders of a majority of the Fund's units, the General Partners expect the sale to close by the end of the second quarter of 2005 and project the sale will result in distributable proceeds of approximately $20 per original $25 investment unit.
Liquidity and Capital Resources
Reference to the Fund's consolidated balance sheets and consolidated statements of cash flows will facilitate understanding of the discussion that follows.
The Fund's working capital (excluding the current portion of long-term debt) increased $1,461,000 to $5,767,000 at December 31, 2004 as compared to $4,306,000 at December 31, 2003. 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 $4,730,000 for 2004 as compared to $5,244,000 for 2003. This decrease in cash flow was due primarily to a larger paydown of accounts payable and accrued expenses as well as an interim payment of $814,000 required by the State of Maryland for Medicaid excesses reimbursements received by the four Maryland facilities since June 2003.
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 revolving credit facility.
Cash used in investing activities for 2004 was $1,180,000 and included improvements to the Fund's seven operating facilities. Similar improvements made during 2003 were $1,969,000. A significant portion of these expenditures have been for non-routine capital improvements required to enhance the functionality of the nursing centers, the average age of which is 27 years.
Cash used in financing activities for 2004 included the repayment of long term debt of $672,000 and distributions to partners totaling $2,371,000. Debt repayment was $661,000 in 2003 and cash distributions to partners were $2,213,000.
The Fund closed its mortgage loan refinancing with a bank for loans totaling $24,000,000 on June 12, 2000. The renewal terms became effective on June 12, 2000 and provided for a term of five years at an interest rate of 9.75%. Monthly payments were based on a 20-year amortization schedule with a balloon payment due at the end of the 5-year term. Effective February 1, 2003, the Fund amended the existing mortgage. The amendment provides for a term of five years at an interest rate of 6.5% from the effective date. Monthly payments of $180,242 are based on a 20-year amortization schedule with a mandatory prepayment option at the Bank's discretion during the period between November 1, 2007 through May 1, 2008.
The Fund also has a $4,000,000 line of credit with the same lender under terms similar to the mortgage loan terms described above, except that the line of credit facility requires annual reaffirmation. The line of credit has been reaffirmed until June 1, 2005. As of December 31, 2004, the Fund had borrowed $227,000 under this credit facility.
Between 1988 and 1989, 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 $1,367,000 at December 31, 2004 and $1,343,000 at December 31, 2003.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued)
On February 28, 2005, the Fund made its fourth quarter 2004 distribution to partners of $583,000, representing a 6% return. This distribution was funded by operating cash flow. The Fund continues to evaluate the impact of proposed Medicaid and Medicare legislation and further capital improvement needs at the facilities. As such, future distributions will be influenced by these considerations and the timing of the proposed sale of the facilities under the Asset Purchase Agreement, if consummated.
Results of Operations December 31, 2004 versus December 31, 2003
Overall 2004 revenues of $65,706,000 increased $1,857,000 or 2.9% from the same period in 2003.
Revenues of $55,341,000 from Medicaid and Medicare patients for the year ended December 31, 2004 increased $1,031,000 or 1.9% from the prior year. This increase is primarily the result of Medicaid and Medicare rate increases. Medicaid revenue increased $995,000 primarily due to an overall rate increase of approximately 7.2% driven primarily by the four Maryland centers, which received their annual Medicaid rate adjustment in July 2004, and a rate increase effective October 2003 for the two North Carolina centers. These increases were partially offset by a decline in the Medicaid census. The average daily Medicaid census decreased 32 residents or 4.6%. Medicare revenue increased $36,000 due primarily to a rate increase of approximately 9.6%, which was offset by a decline in the Medicare census. The average daily Medicare census decreased 12 residents or 9%.
Revenues from private and other patients increased $787,000 to $10,226,000 in fiscal year 2004 as compared to $9,439,000 in fiscal year 2003. This increase is due to growth in the Private and Insurance census, along with an Insurance rate increase. The Private average daily census increased 1.3% or 1 resident, and the Insurance average daily census increased 28.4% or 6.5 residents.
Operating expenses increased $380,000 or .7 % in fiscal year 2004 as compared to fiscal year 2003. This increase is primarily due to the increased cost of nursing services and supplies, state assessment taxes, and property and liability insurance, which is partially offset by a decrease in bad debt expense and ancillary costs. Nursing costs increased $113,000 for the year ended December 31, 2004 as compared to the same period in 2003. An increase in nursing salary and wages is offset by the decreased utilization of temporary nurse staffing. Salary and wage expense for nurses increased $1,479,000, while temporary nurse staffing expense decreased $1,494,000 for the year ended December 31, 2004 compared to the prior year. Nursing purchased services and supplies increased $128,000 for fiscal year 2004 as compared to fiscal year 2003. An assessment levied by the state of North Carolina to patient days retroactive to October 2003 in the amount of $640,286 was recognized in the year ended December 31, 2004. Property and Liability insurance increased $248,000 for fiscal year 2004 as compared to fiscal year 2003 due to the annual rate increase effective June 2004. Bad debt expense decreased $512,000 for the year ended December 31, 2004 as compared to fiscal year 2003 due to improved collection efforts. Ancillary expenses decreased $385,000 or 4.8% for the year ended December 31, 2004 as compared to fiscal year 2003. This decrease is primarily attributable to the decline in the Medicare census, whose customers have high ancillary usage. The Medicare average daily census decreased 12 residents or 9% for the year ended December 31, 2004 compared to the same period in the prior year. The remaining increase in operating costs is due to general inflationary cost increases.
Management and administrative fees increased $161,000 or approximately 4.7% in fiscal year 2004 as compared to fiscal year 2003. This increase is due primarily to an increase in the management fee expense, which is calculated at 5% of the Fund's net revenues.
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)
General and administrative expenses increased $223,000 or 21.0% for the year ended December 31, 2004 as compared to the same period in the prior year. This increase is primarily due to a change in New Jersey regulations which resulted in a $190,000 reduction of a filing fee expense in fiscal year 2003. The remaining increase is due to general inflationary cost increases.
December 31, 2003 versus December 31, 2002
Overall 2003 revenues of $63,849,000 increased $1,929,000 or 3.1% from the same period in 2002.
Revenues of $54,310,000 from Medicaid and Medicare patients for the year ended December 31, 2003 increased $2,507,000 or 4.8% from the prior year. This increase is primarily the result of Medicaid rate increases. Medicaid revenue increased $2,583,000 primarily due to an overall rate increase of approximately 8.6% driven primarily by the four Maryland centers, which received their annual Medicaid rate adjustment in July 2003. Medicaid settlements for prior year audits were finalized, resulting in increased Medicaid revenue of $933,000. Medicare revenue decreased $76,000 due primarily to decreased utilization of Medicare Part B services.
Revenues from private and other patients decreased $555,000 to $9,439,000 in fiscal year 2003 as compared to $9,994,000 in fiscal year 2002. This decrease is a result of lower private census, which was partially offset by a slight increase in insurance census. Private census made up 8.0% of the overall census in fiscal year 2003 compared to 9.3% in fiscal year 2002. In fiscal year 2003, insurance census made up 2.4% of the overall census as compared to 2.3% in fiscal year 2002.
Operating expenses increased $2,874,000 or 5.7% in fiscal year 2003 as compared to fiscal year 2002. This increase is primarily due to the increased cost of nursing services, ancillary costs, and property and liability insurance. Nursing costs increased $1,407,000 for the year ended December 31, 2003 as compared to the same period in 2002. This increase is primarily due to increases in salary and wages, partially offset by the decreased utilization of temporary nurse staffing. Salary and wage expense for nurses increased $2,624,000, while temporary nurse staffing expense decreased $1,217,000 for the year ended December 31, 2003 compared to the prior year. Ancillary expenses increased $688,000 or 9.4% for the year ended December 31, 2003 as compared to the same period in 2002. This increase is primarily attributable to the growth in the Medicare census, whose patients have high ancillary usage. The Medicare average daily census increased 3.9 patients or 2.9% for the year ended December 31, 2003 compared to the prior year. Property and liability insurance increased $170,000 for the year ended December 31, 2003 as compared to the same period in fiscal year 2002 due to the annual rate increase effective June 2003. The remaining increase in operating costs is due to general inflationary cost increases.
Management and administrative fees increased $77,000 or approximately 2.3% in fiscal year 2003 as compared to fiscal year 2002. This increase is due to an increase in the management fee expense, which is calculated at 5% of the Fund's net revenues.
General and administrative expenses decreased $324,000 or 23.3% for the year ended December 31, 2003 as compared to the prior year. This decrease is primarily due to a change in New Jersey regulations which resulted in a $190,000 reduction of a filing fee expense recognized in fiscal year 2002.
Depreciation and amortization expense increased $91,000 to $2,114,000 for the year ended December 31, 2003 compared to the prior year. This increase is primarily due to an increase in depreciation expense for equipment purchases and an increase in amortization of deferred finance fees due to the amortization of debt restructuring fees of $227,000 incurred February 1, 2003. Interest expense decreased $731,000 for the year ended December 31, 2003 as compared to fiscal year 2002 due to the reduction of the interest rate from 9.75% to 6.5% effective February 1, 2003.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Contractual Obligations
The Fund is committed to making cash payments in the future on two types of contracts: a loan payable to the Development General Partner and indebtedness on mortgage loans. The Fund has no off-balance sheet debt or other such unrecorded obligations and has not guaranteed the debt of any other party.
The Fund has future obligations for debt repayments. The obligations (excluding interest) as of December 31, 2004 are summarized as follows (in thousands):
Payments Due by Period
Contractual Less than Obligation Total 1 year 1 - 3 years 4 - 5 years Thereafter - ----------- ------- ------- ----------- ------------ ------------
Long-term debt $21,544 $765 $2,617 $18,162 $0 ======= ======= =========== ============ ============
The Fund is obligated to repay the loan payable to the Development General Partner when certain specified 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. The loan payable balance is $1,367,000 as of December 31, 2004. See the discussion in Note 3 of the Notes to the Consolidated Financial Statements for additional information on this loan payable.
The Fund believes it has, or has access to, sufficient resources to meet these contractual obligations and its operating requirements for the foreseeable future. The Fund currently has in place an agreement to borrow up to $4,000,000 on a revolving credit facility, of which $227,000 is outstanding at December 31, 2004. The Fund's ability to meet its capital requirements will depend on a number of factors, including the ability to meet the loan covenant requirements necessary under its current debt agreements, the success of its nursing center operations, competitive advances, future relationships with corporate partners, government regulation, and the Fund's marketing strategy.
Critical Accounting Policies
An accounting policy is considered to be critical if it is important to the registrant's financial condition and results of operations, and requires significant judgment and estimates on the part of management in its application. The Fund's critical accounting estimates and the related assumptions are evaluated periodically as conditions warrant, and changes to such estimates are recorded as new information or changed conditions require revision. Application of the critical accounting policies requires management's significant judgments, often as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ materially from the estimates made, the reported results could be materially affected. The Fund believes that the following represents our critical accounting policies. For a summary of all of our significant accounting policies, including critical accounting policies discussed below, see Note 1 -"Summary of Significant Accounting Policies" to our consolidated financial statements.
Allowance for Doubtful Accounts- The Fund utilizes the "Aging Method" to evaluate the adequacy of the allowance for doubtful accounts. This method is based upon applying estimated standard allowance requirement percentages to each accounts receivable aging category for each type of payor. The Fund has developed estimated standard allowance requirement percentages by utilizing historical collection trends and an understanding of the nature and collectibility of receivables in the various aging categories and the various segments of our business. The standard allowance percentages are developed by payor type as the accounts receivable from each payor type have unique characteristics. The allowance for doubtful accounts is determined utilizing the aging method described above while also considering accounts specifically identified as uncollectible. Accounts receivable that the Fund specifically estimate to be uncollectible, based upon the age of the receivables, the results of collection efforts or other circumstances, are fully reserved for in the allowance for doubtful accounts until they are written-off.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Critical Accounting Policies (continued)
The Fund believes the assumptions used in aging method employed in fiscal 2004, coupled with continued improvements in its collection patterns, suggest that the allowance for doubtful accounts is adequately provided for at December 31, 2004. However, because the assumptions underlying the aging method are based upon historical collection data, there is a risk that these current assumptions are not reflective of more recent collection patterns. Changes in overall collection patterns can be caused by market conditions and/or budgetary constraints of government funded programs such as Medicare and Medicaid. Such changes can adversely impact the collectibility of receivables, but not be addressed in a timely fashion when using the aging method, until updates to these periodic historical collection studies are completed and implemented.
At least annually, the Fund updates its historical collection studies in order to evaluate the propriety of the assumptions underlying the aging method. Any changes to the underlying assumptions are implemented immediately. Changes to these assumptions can have a material impact on our bad debt expense, which is reported in the consolidated statements of earnings as a component of operating expenses.
Revenue Recognition- Revenue is recognized in the period the related services are rendered. The Fund derives a substantial portion of our inpatient services revenue under Medicaid and Medicare reimbursement systems.
Under certain prospective Medicaid systems and Medicare the Fund is reimbursed at a predetermined rate based upon the historical cost to provide the service, demographics of the site of service and the acuity of the customer. The differences between the established billing rates and the predetermined rates are recorded as contractual adjustments and deducted from revenues. Under a prospective reimbursement system, there is no adjustment or settlement of the difference between the actual cost to provide the service and the predetermined rate.
Under certain retrospective Medicaid systems, revenues are generally based on reimbursement of the reasonable direct and indirect costs of providing services to program participants. The Fund separately estimates revenues due from each third party with which it has a contractual arrangement and records anticipated settlements with these parties in the contractual period during which services were rendered. The amounts actually reimbursable under the cost based reimbursement programs are determined by filing cost reports which are then subject to audit and retroactive adjustment by the payor. The Fund provides an allowance for potential audit adjustments to the interim reimbursement amounts received under these cost reimbursement programs. Revisions to this allowance, if any, are recorded as an adjustment to revenues in the year such amounts are determined. Factors that management considers when establishing or adjusting an allowance for potential audit adjustments include, but are not limited to, changes in estimates resulting from improved cost information and preliminary results of third-party audits and reviews. Adjustments and final settlements with third-party payors are reflected in operations at the time of the adjustment or settlement as an increase or decrease to the balance of estimated third-party payor settlements and revenue.
Outlook
The major challenge to the Fund in the foreseeable future is to control operating expenses to maintain a quality mix of patients and to increase the overall census at each of the facilities.
Item 7a.
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. At December 31, 2004, the Fund has $227,000 of debt subject to variable rates of interest. A one percent change in prime rate would result in a change to the Fund's interest expense of $2,270 annually.
The fair value of our fixed rate debt approximates its carrying value of $21,544,000 at December 31, 2004.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 8.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements: Annual Report Page(s) Report of Independent Registered Public Accounting Firm 5 Consolidated Balance Sheets 6 Consolidated Statements of Earnings 7 Consolidated Statements of Partners' Capital (Deficit) 8 Consolidated Statements of Cash Flows 9 Notes to Consolidated Financial Statements 10-19
Quarterly Financial Data (Unaudited)
The Fund's unaudited quarterly financial information is as follows (in thousands):
Total Net Net Revenues Earnings Quarter ended:
March 31, 2004 $16,741 $1,032 June 30, 2004 16,033 284 September 30, 2004 15,946 679 December 31, 2004 16,986 1,424
March 31, 2003 15,407 321 June 30, 2003 15,343 378 September 30, 2003 16,028 538 December 31, 2003(1) 17,071 1,089
(1) Increase in quarterly net earnings primarily due to favorable Medicaid settlements.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
Item 9a.
Item 9a. Controls and Procedures
The Fund's management, with the participation of the Chief Executive Officers and Chief Financial Officers of Brown Healthcare, Inc., the Administrative General Partner, and Meridian Healthcare Investments, Inc., the Development General Partner, evaluated the effectiveness of the Fund's disclosure controls and procedures as of December 31, 2004. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. The Fund's management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Fund's disclosure controls and procedures as of December 31, 2004, the Chief Executive Officers and Chief Financial Officers of the Fund's general partners concluded that, as of such date, the Company's disclosure controls and procedures were effective at
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 9a. Controls and Procedures (continued)
the reasonable assurance level. No change in the Fund's internal control over financial reporting occurred during the iscal quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting.
Item 9b.
Item 9b. Other Information
None.
PART III
Item 10.
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 300 East Lombard Street, Suite 1200, 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.
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 currently owns, leases or manages 214 eldercare centers with 26,321 beds concentrated in the states of Pennsylvania, New Jersey, Maryland and Massachusetts. Genesis also provides an extensive range of rehabilitation therapy services. These services are provided by approximately 4,300 licensed rehabilitation therapists and assistants.
The following individuals are the directors and principal officers of Meridian Healthcare Investments, Inc.:
George V. Hager, Jr., age 49, has served as Chairman and Chief Executive Officer of Genesis HealthCare since its inception in May 2003. Mr. Hager joined NeighborCare, Inc. in 1992, Genesis' former parent company. From 1992 to December 2003, he served as NeighborCare, Inc.'s Chief Financial Officer. Mr. Hager serves on the board of directors of Adolor Corporation (Nasdaq: ADLR).
James V. McKeon, age 40, has served as Executive Vice President and Chief Financial Officer of Genesis HealthCare since December 2003. Mr. McKeon joined NeighorCare in 1994 serving in a variety of financial positions, most recently as NeighborCare, Inc.'s Senior Vice President and Corporate Controller, and it's Director of Financial Reporting and Investor Relations.
Eileen M. Coggins, age 40, has served as Senior Vice President, General Counsel & Corporate Secretary of Genesis HealthCare since December 2003. Ms. Coggins served as NeighborCare, Inc.'s Corporate Compliance and Privacy Officer from December 2002 until December 2003. Prior to that appointment, from April 1998 to December 2002, she was NeighborCare, Inc.'s Vice President of Compliance, and prior to that appointment was NeighborCare, Inc.'s Deputy General Counsel.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 10. Directors and Executive Officers of Registrant (continued)
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 56, 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 52, 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.
Kathleen F. Russell, age 49, is the Secretary of the Administrative General Partner and a Vice President and Secretary of Alex. Brown Realty, Inc. Ms. Russell graduated from the University of Delaware in 1978, and received a J.D. degree from the Catholic University of America in 1982. Prior to joining Alex. Brown Realty, Inc. in 1992, Ms. Russell was associated in the Real Estate Department of Venable, Baetjer and Howard from 1982 to 1992.
Timothy M. Gisriel, age 48, 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.
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.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 12.
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.
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 2004, 2003, and 2002, and to be paid to the General Partners and their affiliates at December 31, 2004, see Note 3, "Related Party Transactions" in Item 8. Financial Statements, herein.
Item 14.
Item 14. Principal Accountant Fees and Services
KPMG LLP served as the Fund's independent auditors for the last fiscal year. For services rendered during or in connection with our fiscal years 2004 and 2003, as applicable, KPMG LLP billed the following fees:
2004 2003 Audit Fees $ 84,300 $ 80,300
Audit-Related Fees $ 0 $ 0 Tax Fees $ 21,500 $ 25,600 All Other Fees $ 0 $ 0
The Board of Directors of the General Partner has the sole authority to pre-approve any engagement of the independent auditor to provide audit or non-audit services and pre-approved all of the services provided by KPMG LLP in 2004.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedule
(a) 1. Financial Statements: see Index to Financial Statements and Supplementary Data in Item 8 on Page 18.
2. Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2004, 2003 and 2002. 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 2004.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 15. Exhibits and Financial Statement Schedule (continued)
(31.1) Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.3) Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.4) Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(32.2) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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: 3/28/05 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: 3/28/05 By: /s/ John M. Prugh John M. Prugh President and Director Brown-Healthcare, Inc. Administrative General Partner
DATE: 3/29/05 By: /s/ Peter E. Bancroft Peter E. Bancroft Vice President and Director Brown-Healthcare, Inc. Administrative General Partner
DATE: 3/28/05 By: /s/ Kathleen F. Russell Kathleen F. Russell Secretary Brown-Healthcare, Inc. Administrative General Partner
DATE: 3/29/05 By: /s/ Timothy M. Gisriel Timothy M. Gisriel Treasurer Brown-Healthcare, Inc. Administrative General Partner
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
SIGNATURES (continued)
DATE: 3/29/05 By: /s/ George V. Hager, Jr. George V. Hager, Jr. Chief Executive Officer Meridian Healthcare Investments, Inc. Development General Partner
DATE: 3/29/05 By: /s/ James V. McKeon James V. McKeon Chief Financial Officer Meridian Healthcare Investments, Inc. Development General Partner
REPORT OF INDEPENDENT REGSITERED PUBLIC ACCOUNTING FIRM
To the Partners of Meridian Healthcare Growth and Income Fund Limited Partnership:
Under date of March 25, 2005, we reported on the consolidated balance sheets of Meridian Healthcare Growth and Income Fund Limited Partnership and subsidiaries (the Fund) as of December 31, 2004 and 2003, 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, 2004, as contained in the annual report on Form 10-K for the year ended December 31,2004. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in the annual report on Form 10-K. This financial statement schedule is the responsibility of the Fund's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement 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.
Philadelphia, Pennsylvania March 25, 2005
Meridian Healthcare Growth and Income Fund Limited Partnership Valuation and Qualifying Accounts Years Ended December 31, 2004, 2003 and 2002 (Dollars in Thousands)
Schedule II
Exhibit 31.1
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, George V. Hager, Jr. certify that:
1. I have reviewed this annual report on Form 10-K of Meridian Healthcare Growth and Income Fund Limited Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) {Intentionally omitted}
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: 3/29/05 By: /s/ George V. Hager, Jr. George V. Hager, Jr. Chief Executive Officer Meridian Healthcare Investments, Inc. Development General Partner
Exhibit 31.2
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, James V. McKeon, certify that:
1. I have reviewed this annual report on Form 10-K of Meridian Healthcare Growth and Income Fund Limited Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) {Intentionally omitted}
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: 3/29/05 By: /s/ James V. McKeon James V. McKeon Chief Financial Officer Meridian Healthcare Investments, Inc. Development General Partner
Exhibit 31.3
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John M. Prugh, certify that:
1. I have reviewed this annual report on Form 10-K of Meridian Healthcare Growth and Income Fund Limited Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) {Intentionally omitted}
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: 3/28/05 By: /s/ John M. Prugh John M. Prugh Chief Executive Officer Brown-Healthcare, Inc. Administrative General Partner
Exhibit 31.4
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Timothy M. Gisriel, certify that:
1. I have reviewed this annual report on Form 10-K of Meridian Healthcare Growth and Income Fund Limited Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) {Intentionally omitted}
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: 3/29/05 By: /s/ Timothy M. Gisriel Timothy M. Gisriel Chief Financial Officer Brown-Healthcare, Inc. Administrative General Partner
Exhibit 32.1
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of Meridian Healthcare Growth and Income Fund Limited Partnership's (the "Fund") annual report on Form 10-K for the period ending December 31, 2004 with the Securities and Exchange Commission on the date hereof (the "Report"), We certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund.
Date: 3/29/05 By: /s/ George V. Hager, Jr. George V. Hager, Jr. Chief Executive Officer Meridian Healthcare Investments, Inc. Development General Partner
Date: 3/29/05 By: /s/ James V. McKeon James V. McKeon Chief Financial Officer Meridian Healthcare Investments, Inc. Development General Partner
Exhibit 32.2
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of Meridian Healthcare Growth and Income Fund Limited Partnership's (the "Fund") annual report on Form 10-K for the period ending December 31, 2004 with the Securities and Exchange Commission on the date hereof (the "Report"), We certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund.
Date: 3/28/05 By: /s/ John M. Prugh John M. Prugh Chief Executive Officer Brown-Healthcare, Inc. Administrative General Partner
Date: 3/29/05 By: /s/ Timothy M. Gisriel Timothy M. Gisriel Chief Financial Officer Brown-Healthcare, Inc. Administrative General Partner