You should read the following discussion together with our unaudited condensed
consolidated financial statements and the related notes included elsewhere in
this quarterly report on Form 10-Q. This discussion contains forward-looking
statements about our business and operations. Statements that are predictive in
nature, that depend upon or refer to future events or conditions or that include
words like "believes," "belief," "expects," "plans," "anticipates," "intends,"
"projects," "estimates," "may," "might," "would," "should" and similar
expressions are intended to be forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. These statements are based on
the beliefs and assumptions of our management based on information currently
available to management. Such forward-looking statements are subject to risks,
uncertainties and other important factors that could cause actual results and
the timing of certain events to differ materially from future results expressed
or implied by such forward-looking statements. These risks and uncertainties
include, but are not limited to, the anticipated impact to our business with
respect to developments related to the COVID-19 pandemic, including, without
limitation, those related to the length and severity of the pandemic, as well as
the timing, availability and acceptance of effective medical treatments,
vaccines and booster shots; the spread of potentially more contagious and/or
virulent forms of the virus; the pandemic's impact on our operations,
reimbursement and our consumer population; measures we are taking to respond to
the pandemic; the impact of government regulation, stimulus and relief measures,
including the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"),
Paycheck Protection Program and Health Care Enhancement Act ("PPPHCE Act"), the
Consolidated Appropriations Act, 2021 ("CAA"), the COVID-Related Tax Relief Act
of 2020, the American Rescue Plan of 2021 ("ARPA") and any other stimulus or
relief legislation, along with the related uncertainties regarding such measures
and any future measures related to COVID-19; negative economic conditions in the
United States , including inflationary conditions; increased expenses related to
personal protective equipment ("PPE"), labor, supply chain, or other
expenditures, including as a result of inflationary conditions; workforce
disruptions, including shortages and increased labor expenses, associated with
competitive labor market conditions; the impact of vaccine mandates on the
workforce; and supply shortages and disruptions; changes in operational and
reimbursement processes and payment structures at the state or federal levels;
changes in Medicaid, Medicare, other government program and managed care
organizations policies and payment rates; changes in, or our failure to comply
with, existing, federal and state laws or regulations, or our failure to comply
with new government laws or regulations on a timely basis; competition in the
healthcare industry; the geographical concentration of our operations; changes
in the case mix of consumers and payment methodologies; operational changes
resulting from the assumption by managed care organizations of responsibility
for managing and paying for our services to consumers; the nature and success of
future financial and/or delivery system reforms; changes in estimates and
judgments associated with critical accounting policies; our ability to maintain
or establish new referral sources; our ability to renew significant agreements
or groups of agreements; our ability to attract and retain qualified personnel;
federal, state and city minimum wage pressure, including any failure of any
governmental entity to enact a minimum wage offset and/or the timing of any such
enactment; changes in payments and covered services due to the overall economic
conditions, and deficit spending by federal and state governments; cost
containment initiatives undertaken by federal, state and other third-party
payors; our ability to access financing through the capital and credit markets;
our ability to meet debt service requirements and comply with covenants in debt
agreements; business disruptions due to natural disasters, acts of terrorism,
pandemics, riots, civil insurrection or social unrest, looting, protests,
strikes or street demonstrations; our ability to integrate and manage our
information systems; our ability to prevent cyber-attacks or security breaches
to protect our information technology systems and confidential consumer data;
our expectations regarding the size and growth of the market for our services;
the acceptance of privatized social services; our expectations regarding changes
in reimbursement rates; eligibility standards and limits on services imposed by
state governmental agencies; the potential for litigation; discretionary
determinations by government officials; our ability to successfully implement
our business model to grow our business; our ability to continue identifying,
pursuing, consummating and integrating acquisition opportunities and expand into
new geographic markets; the impact of acquisitions and dispositions on our
business, including the potential inability to realize the benefits of potential
acquisitions; the effectiveness, quality and cost of our services; our ability
to successfully execute our growth strategy; changes in tax rates; the impact of
public health emergencies, including the COVID-19 pandemic; the impact of
inclement weather or natural disasters; and various other matters, many of which
are beyond our control. In addition, these forward-looking statements are
subject to the risk factors set forth in Part I, Item 1A of our Annual Report on
Form 10-K for the period ended December 31, 2021 , filed with the SEC on February
25, 2022 . You should carefully review all of these factors. Moreover, our
business may be materially adversely affected by factors that are not currently
known to us, by factors that we currently consider immaterial or by factors that
are not specific to us, such as general economic conditions. These
forward-looking statements were based on information, plans and estimates at the
date of this report, and we assume no obligation to update any forward-looking
statements to reflect changes in underlying assumptions or factors, new
information, future events or other changes, except as may be required by law.
Insight
We are a home care services provider operating three segments: personal care, hospice and home health. Our services are principally provided in-home under agreements with federal, state and local government agencies, managed care organizations, commercial insurers and private individuals. Our consumers are predominantly "dual eligible," meaning they are eligible to receive both Medicare and Medicaid benefits. Managed care revenues accounted for 35.8% and 37.2% of our net service revenues during the three months endedJune 30, 2022 and 2021, respectively, and 35.8% and 37.5% of our net service revenues during the six months endedJune 30, 2022 and 2021, respectively. 20
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A summary of certain consolidated financial results is provided in the table
below.
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net service revenues by segment: (Amounts in Thousands) (Amounts in Thousands)
Personal care $ 174,330 $ 176,267 $ 343,962 $ 341,135
Hospice 52,074 36,909 99,801 73,003
Home health 10,536 4,717 19,811 9,057
Total net service revenues $ 236,940 $ 217,893 $ 463,574 $ 423,195
Net income $ 11,250 $ 11,597 $ 19,720 $ 20,491
As of June 30, 2022 , we provided our services in 22 states through 206 offices.
We served approximately 58,000 and 56,000 discrete individuals, respectively,
during the six months ended June 30, 2022 and 2021. Our personal care segment
also includes staffing services, with clients including assisted living
facilities, nursing homes and hospice facilities.
Update on the COVID-19 pandemic
Althoughthe United States has experienced a moderation of infection and related hospitalization rates, there continues to be a significant number of COVID-19 cases and deaths inthe United States and throughout the world. The long-term trends of new cases and deaths inthe United States and the future impact of the pandemic continue to be unknown. CMS issued an interim rule inNovember 2021 requiring COVID-19 vaccinations for Medicare- and Medicaid-certified providers and suppliers, including hospices and home health agencies, which covers clinical staff, individuals providing services under arrangements, volunteers and staff who are not involved in direct patient care. Additionally, some states have implemented, or may implement in the future, vaccine mandates with respect to healthcare personnel. It is currently difficult to predict the impact that any of these vaccine mandates may have on us or the extent to which these vaccine mandates will ultimately become effective. However, we expect that these rules, to the extent that they become effective, will impact our home health and hospice segments. For the three and six months endedJune 30, 2022 , COVID-19-related expenses in our personal care segment were approximately$1.1 million and$2.8 million , respectively, and are included in cost of service revenues on the Consolidated Statements of Income. For the three and six months endedJune 30, 2021 , COVID-19-related expenses in our personal care segment were approximately$11.4 million and$13.3 million , respectively, which were offset by$10.4 million and$11.3 million , respectively, related to the utilization of a portion of the funds received from theProvider Relief Fund inNovember 2020 and included in cost of service revenues on the Condensed Consolidated Statements of Income. Additionally, we recognized revenue of$1.6 million and$3.0 million attributable to temporary rate increases from certain payors in our personal care segment for the three and six months endedJune 30, 2022 , respectively, and$3.1 million and$4.8 million for the three and six months endedJune 30, 2021 , respectively. For the three and six months endedJune 30, 2021 , COVID-19-related expenses in our hospice segment were approximately$1.9 million , which were offset by$1.9 million , related to the utilization of a portion of the funds received from theQueen City Hospice Provider Relief Fund and included in cost of service revenues on the Condensed Consolidated Statements of Income. As ofJune 30, 2022 , the Company deferred the recognition of$5.4 million of payments received from payors for COVID-19 reimbursement, included within accrued expenses, which will be recognized as we incur specific expenses related to the pandemic, such as expenses related to acquiring additional PPE and COVID-19 related paid time off, or will be returned to the extent COVID-19-related expenses are not incurred. We are not able to reasonably predict the total costs we will incur related to the COVID-19 pandemic, and such costs could be substantial. Federal and state agencies continue to issue regulations and guidance related to the COVID-19 pandemic, and the public health situation continues to evolve, and, therefore, we cannot currently predict with certainty the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted by the pandemic. We will continue to assess the impact and consequences of the COVID-19 pandemic and government responses to the pandemic, including the implementation of the CARES Act, the PPPHCE Act, the CAA, the ARPA, other stimulus and relief legislation, the President's National COVID-19 Preparedness Plan, and existing and potential additional federal, state and local vaccine mandates, on our business, results of operations, financial condition and cash flows. Given the dynamic nature of these circumstances, the related financial effect cannot be reasonably estimated at this time but is not expected to materially adversely impact our business. See Part I, Item 1A-Risk Factors - "The COVID-19 pandemic could negatively affect our operations, business and financial condition, and our liquidity could also be negatively impacted, particularly if theU.S. economic and/or public health conditions deteriorate in connection with the pandemic" of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 25, 2022 . 21
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See “Cash and Capital Resources” below for more information on funds received related to COVID-19 pandemic relief.
Recruitment
As the labor market has tightened and unemployment has declined in comparison to earlier levels, the competition for new caregivers, including skilled healthcare staff, and support staff has increased. In addition,the United States economy continues to experience significant inflationary pressures and a competitive labor market. To the extent that we continue to experience a shortage of caregivers, it may hinder our ability to fully meet the continuing demand for both our non-clinical and clinical services. The increased staffing challenges, including COVID-19 related quarantine requirements and inflationary pressures, resulted in increased labor costs to satisfy our staffing requirements during the three and six months endedJune 30, 2022 compared to 2021 in our non-clinical and clinical operations.
Acquisitions
In addition to our organic growth, we have grown through acquisitions that have expanded our presence in current markets, with the goal of having all three levels of in-home care in our markets or facilitating our entry into new markets where in-home care has been moving to managed care organizations. OnAugust 1, 2021 , we completed the acquisition ofArmada Skilled Homecare of New Mexico LLC ,Armada Hospice of New Mexico LLC andArmada Hospice of Santa Fe LLC (collectively, "Armada") for approximately$29.8 million , including the amount of acquired excess cash held by Armada at the closing of the acquisition (approximately$0.7 million ), with funding provided by our revolving credit facility. With the purchase of Armada, we expanded our home health and hospice services in the state ofNew Mexico . OnOctober 1, 2021 , we completed the acquisition ofSummit Home Health, LLC ("Summit") for approximately$8.1 million , with funding provided by available cash. With the purchase of Summit, we added clinical services inIllinois to our home health segment. OnFebruary 1, 2022 , we completed the acquisition of the hospice and palliative operations ofJourneyCare, Inc. ("JourneyCare") for approximately$86.6 million , including the amount of acquired excess cash held byJourneyCare at the closing of the acquisition (approximately$0.5 million ) plus the finalization of net working capital payable to seller of$1.6 million , with funding provided through a combination of a$35.0 million draw under the revolving credit facility and available cash on hand. With theJourneyCare acquisition, we added hospice services inIllinois .
Receipts by payer and significant states
Our payors are principally federal, state and local governmental agencies and managed care organizations. The federal, state and local programs under which the agencies operate are subject to legislative and budgetary changes and other risks that can influence reimbursement rates. We are experiencing a transition of business from government payors to managed care organizations, which we believe aligns with our emphasis on coordinated care and the reduction of the need for acute care.
Our revenue by payer and material statements by segment were as follows:
Personal Care Segment For the Three Months EndedJune 30 ,
For the six months ended
2022 2021 2022 2021
% of % of % of % of
Segment Segment Segment Segment
Amount Net Service Amount Net Service Amount Net Service Amount Net Service
(in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues
State, local and other government programs $85,462
49.0 % $ 88,382 50.2 %$ 169,370 49.2 %$ 169,231 49.6 % Managed care organizations 80,577 46.2 78,865 44.7 157,967 45.9 154,321 45.2 Private pay 4,610 2.7 5,046 2.9 9,236 2.7 9,949 2.9 Commercial insurance 2,093 1.2 2,676 1.5 4,117 1.2 5,022 1.5 Other 1,588 0.9 1,298 0.7 3,272 1.0 2,612 0.8
Total Net Personal Care Services Revenue
100.0 %$ 176,267 100.0 %$ 343,962 100.0 %$ 341,135 100.0 %Illinois $ 88,797 50.9 % $ 84,788 48.0 %$ 173,480 50.4 %$ 158,172 46.3 %New Mexico 26,473 15.2 25,484 14.5 51,912 15.1 49,077 14.4New York (1) 21,127 12.1 25,535 14.5 42,513 12.4 53,110 15.6 All other states 37,933 21.8 40,460 23.0 76,057 22.1 80,776 23.7
Total Net Personal Care Services Revenue
100.0 %$ 176,267 100.0 %$ 343,962 100.0 %$ 341,135 100.0 % 22
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(1) The Company has materially suspended all new patient admissions
under the New York CDPAP program as discussed below. Hospice Segment For the Three Months EndedJune 30 ,
For the six months ended
2022 2021 2022 2021
% of % of % of % of
Segment Segment Segment Segment
Amount Net Service Amount Net Service Amount Net Service Amount Net Service
(in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues
Medicare $ 47,152 90.5 % $ 34,452 93.3 % $ 90,637 90.8 % $ 68,437 93.8 %
Commercial insurance 2,726 5.2 959 2.6 4,970 5.0 1,492 2.0
Managed care organizations 1,968 3.8 1,395 3.8 3,683 3.7 2,882 3.9
Other 228 0.5 103 0.3 511 0.5 192 0.3
Total hospice segment net service revenues $ 52,074 100.0 % $ 36,909 100.0 % $ 99,801 100.0 % $ 73,003 100.0 %
Ohio $ 17,245 33.1 % $ 14,694 39.8 % $ 33,574 33.7 % $ 28,808 39.4 %
Illinois (2) 13,561 26.0 - - 16,078 16.1 - -
New Mexico 7,846 15.1 8,717 23.6 23,102 23.1 17,948 24.6
All other states 13,422 25.8 13,498 36.6 27,047 27.1 26,247 36.0
Total hospice segment net service revenues $ 52,074 100.0 % $ 36,909 100.0 % $ 99,801 100.0 % $ 73,003 100.0 %
(2) With the
services in the state ofIllinois . Home Health Segment For the Three Months EndedJune 30 ,
For the six months ended
2022 2021 2022 2021
% of % of % of % of
Segment Segment Segment Segment
Amount Net Service Amount Net Service Amount Net Service Amount Net Service
(in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues
Medicare $ 7,592 72.1 % $ 3,825 81.1 % $ 14,404
72.7 % $ 7,327 80.9 % Managed care organizations 2,262 21.5 822 17.4 4,166 21.0 1,620 17.9 Other 682 6.4 70 1.5 1,241 6.3 110 1.2
Total net revenues from home health services $10,536
100.0 % $ 4,717 100.0 % $ 19,811 100.0 % $ 9,057 100.0 %New Mexico $ 9,070 86.1 % $ 4,717 100.0 % $ 16,579 83.7 % $ 9,057 100.0 %Illinois (3) 1,466 13.9 - - 3,232 16.3 - -
Total net revenues from home health services $10,536
100.0 % $ 4,717 100.0 % $ 19,811 100.0 % $ 9,057 100.0 %
(3) With the acquisition of Summit, the Company has expanded its home care offering
services in the state of
We derive a significant amount of our net service revenues inIllinois , which represented 43.8% and 38.9% of our net service revenues for the three months endedJune 30, 2022 and 2021, respectively, and accounted for 41.6% and 37.4% of our net service revenues for the six months endedJune 30, 2022 and 2021, respectively. A significant amount of our net service revenues are derived from one payor, theIllinois Department on Aging , the largest payor program for ourIllinois personal care operations, which accounted for 20.7% and 22.6% of our net service revenues for the three months endedJune 30, 2022 and 2021, respectively, and accounted for 20.7% and 21.5% of the Company's net service revenues for the six months endedJune 30, 2022 and 2021, respectively.
Reimbursement Rate Changes
OnNovember 26, 2019 , theCity of Chicago voted to approve additional increases in theChicago minimum wage to$14 per hour beginningJuly 1, 2020 and to$15 per hour beginningJuly 1, 2021 . In subsequent years, minimum wage will be increased through a cost of living adjustment capped at 2.5%. EffectiveJanuary 1, 2021 , the state ofIllinois fiscal year 2021 budget increased hourly in-home care rates through the Community Care Program by 7.1%, to$23.40 from$21.84 . However, the rate increase was delayed and did not take effect untilApril 1, 2021 , as a result of the 23
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failure of theNovember 2020 referendum to revise theIllinois income tax code. The Company recognized$2.0 million related to the rate increase for the year endedDecember 31, 2021 , which was received during the three and six months endedJune 30, 2022 . Originally, theIllinois fiscal year 2022 budget included a scheduled increase of hourly in-home care rates to$24.96 , to be effectiveJanuary 1, 2022 . OnJuly 12, 2021 , in connection with the temporary increase in federal funding for Medicaid HCBS authorized by the ARPA,Illinois submitted its Initial Spending Plan and Narrative to CMS for approval. This plan included the acceleration of the rate increase to$24.96 toNovember 1, 2021 fromJanuary 1, 2022 (i.e., two months earlier). CMS granted partial approval of theIllinois plan, including the acceleration of the rate increase toNovember 1, 2021 . However, CMS noted that the state will need to submit an amendment for certain Medicaid waiver programs with regard to any rate change methodology and has highlighted that pay increases for providers of HCBS funded through the temporary increase in federal matching funds available under the ARPA will require an updated rate methodology. We recognized revenue of$3.6 million related to the rate increase for the year endedDecember 31, 2021 , of which$2.1 million was received during the three and six months endedJune 30, 2022 . The remainder is expected to be received during the third quarter of 2022.
The
Our business will benefit from the rate increases noted above as planned for 2023, but there is no assurance that there will be additional offsetting rate increases inIllinois for fiscal years beyond fiscal year 2023, and our financial performance will be adversely impacted for any periods in which an additional offsetting reimbursement rate increase is not in effect.
Impact of changes in Medicare and Medicaid reimbursement
Home health services provided to Medicare beneficiaries are paid under the
Medicare Home Health Prospective Payment System ("HHPPS"), which uses national,
standardized 30-day period payment rates for periods of care that meet a certain
threshold of home health visits (periods of care that do not meet the visit
threshold are paid a per-visit payment rate for providing care). Although
payment is made for each 30-day period, the HHPPS permits continuous 60-day
certification periods through which beneficiaries are verified as eligible for
the home health benefit. The daily home health payment rate is adjusted for
case-mix and area wage levels. CMS uses the Patient-Driven Groupings
Model ("PDGM") as the case-mix classification model to place periods of care
into payment categories, classifying patients based on clinical characteristics
and their resource needs. An outlier adjustment may be paid for periods of care
where costs exceed a specific threshold amount.
CMS updates the HHPPS payment rates each calendar year. For calendar year 2022,
CMS increased HHPPS rates by an estimated 3.2%, which reflects a 3.1% market
basket update and a productivity adjustment of negative 0.5 percentage points,
among other changes. Home health providers that do not comply with quality data
reporting requirements are subject to a 2-percentage point reduction to their
market basket update. In addition, beginning January 1, 2022 , Medicare requires
home health agencies to submit a one-time Notice of Admission ("NOA") for each
patient that establishes that the beneficiary is under a Medicare home health
period of care. Failure to submit the NOA within five calendar days from the
start of care will result in a reduction to the 30-day period payment amount for
each day from the start of care date until the date the NOA is submitted.
Effective January 1, 2022 , CMS began implementing a nationwide expansion of the
Home Health Value-Based Purchasing ("HHVBP") Model. Under the model, home health
agencies will receive increases or decreases to their Medicare fee-for-service
payments of up to 5%, based on performance against specific quality measures
relative to the performance of other home health providers. Data collected in
each performance year will impact Medicare payments two years later. Calendar
year 2023 is the first performance year under the expanded HHVBP Model, which
will affect payments in calendar year 2025.
In certain states, payment of claims may be impacted by the Review Choice
Demonstration for Home Health Services , a program intended to identify and
prevent fraud, reduce the number of Medicare appeals and improve provider
compliance with Medicare program requirements. The program applies to home
health agencies in Illinois , Ohio , North Carolina , Florida and Texas and may
expand, in the future, into additional states. Providers in states subject to
the Review Choice Demonstration may initially select from the following claims
review and approval processes: pre-claim review, post-payment review or a
minimal post-payment review with a 25% payment reduction. Home health agencies
that maintain high compliance levels will be eligible for additional options
that may be less burdensome. We are currently unable to predict what impact, if
any, this program may have on our result of operations or financial position.
Hospice
Hospice services provided to Medicare beneficiaries are paid under the Medicare Hospice Prospective Payment System, under which CMS sets a daily rate for each day a patient is enrolled in the hospice benefit. CMS updates these rates each federal fiscal year. EffectiveOctober 1, 2021 , CMS increased hospice payment rates by 2.0%. This reflects a 2.7% market basket increase and a negative 0.7 percentage point productivity adjustment. Hospices that do not satisfy quality reporting requirements are subject to a 2 percentage point reduction to the 24
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update of the grocery basket. Starting in 2024, the market basket update reduction for failure to report quality data will increase to 4 percentage points.
Overall payments made by Medicare to each hospice provider number are subject to an inpatient cap and an aggregate cap, which is set each federal fiscal year. The inpatient cap limits the number of days of inpatient care to no more than 20% of total patient care days. The aggregate cap, which limits the total Medicare reimbursement that a hospice may receive based on an annual per-beneficiary cap amount and the number of Medicare patients served, was updated to$31,297.61 for federal fiscal year 2022. If a hospice's Medicare payments exceed its inpatient or aggregate caps, it must repay Medicare the excess amount.
New York CDPAP
The New York Consumer Directed Personal Assistance Program ("CDPAP") is a self-directed care alternative program that allows eligible individuals who need help with activities of daily living or skilled nursing services to choose their caregivers. We provide support services as a CDPAP fiscal intermediary. In 2021, the Company was not selected to enter into contracts as a Lead Fiscal Intermediary and submitted a formal protest in response to the selection process, which was filed and accepted onMarch 19, 2021 . The Company has not received a response to the formal protest. TheNew York fiscal year 2023 state budget, passed inApril 2022 , amends the current Fiscal Intermediary Request For Offer ("RFO") process to authorize all fiscal intermediaries that submitted an RFO application and served at least 200 clients inNew York City or 50 clients in other counties betweenJanuary 1, 2020 andMarch 31, 2020 to contract with theNew York State Department of Health and continue to operate in all counties contained in their application. Under this provision, the Company is allowed to continue to contract with all of its current payors for CDPAP services. The Company continues to assess the future of its participation in this program. Given the status of the program, the Company suspended materially all of its new patient admissions under the New York CDPAP.
Components of our income statements
Net service income
We generate net service revenues by providing our services directly to consumers and primarily on an hourly basis in our personal care segment, on a daily basis in our hospice segment and on an episodic basis in our home health segment. We receive payment for providing such services from our private consumers and payors, including federal, state and local governmental agencies, managed care organizations and commercial insurers. In our personal care segment, net service revenues are principally provided based on authorized hours, determined by the relevant agency, at an hourly rate, which is either contractual or fixed by legislation, and are recognized at the time services are rendered. In our hospice segment, net service revenues are provided based on daily rates for each of the levels of care and are recognized as services are provided. In our home health segment, net service revenues are based on an episodic basis at a stated rate and recognized based on the number of days elapsed during a period of care within the reporting period. We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record revenues.
Service revenue cost
We incur direct care wages, payroll taxes and benefit-related costs in connection with providing our services. We also provide workers' compensation and general liability coverage for our employees. Employees are also reimbursed for their travel time and related travel costs in certain instances.
General and administrative expenses
Our general and administrative expenses include our costs for operating our network of local agencies and our administrative offices. Our agency expenses consist of costs for supervisory personnel, our community care supervisors and office administrative costs. Personnel costs include wages, payroll taxes and employee benefits. Facility costs include rents, utilities, and postage, telephone and office expenses. Our corporate and support center expenses include costs for accounting, information systems, human resources, billing and collections, contracting, marketing and executive leadership. These expenses consist of compensation, including stock-based compensation, payroll taxes, employee benefits, legal, accounting and other professional fees, travel, general insurance, rents, provision for doubtful accounts and related facility costs. Expenses related to streamlining our operations such as costs related to terminated employees, termination of professional services relationships, other contract termination costs and asset write-offs are also included in general and administrative expenses.
Depreciation and amortization
Depreciable assets consist primarily of furniture and equipment, network and telephone administration equipment and operating system software. Depreciable and leased assets are depreciated on a straight-line basis over their useful life or, if it is lower and if
25
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applicable, their lease terms. We amortize our intangible assets with finite lives, consisting of customer and referral relationships, trade names, trademarks and non-competition agreements, using straight line or accelerated methods based upon their estimated useful lives.
Interest charges
Interest expense is recognized as incurred and consists primarily of interest and unused line of credit charges on the credit facility.
income tax expense
All of our income is from domestic sources. We incur state and local taxes in states in which we operate. The effective income tax rate was 25.1% and 26.7% for the three months endedJune 30, 2022 and 2021, respectively. The effective income tax rates are 26.3% and 23.5% for the six months endedJune 30, 2022 and 2021, respectively, compared to our federal statutory rate of 21%. The difference between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes, non-deductible compensation, excess tax expense/benefit and the use of federal employment tax credits.
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