Shareholders of Diversicare Healthcare Services have been pummeled recently, with the share price down about 65% in the past 12 months, and down 40% since July 1. Not what shareholders want to see, especially with the markets as strong as they have been (with the frequent hiccups, of course).

The company is the smallest of the publicly traded skilled nursing companies, with 72 SNFs and 8,214 beds in operation as of June 30 plus an additional 429 assisted living and personal care beds. But to report adjusted EBITDA of just $600,000 in the second quarter was, well, just too much, and the news sent the price diving.

Year-over-year skilled nursing occupancy declined by 130 basis points to 78.5%, and its Medicare census dropped 90 basis points to 9.7%. When Medicare is the name of the game, you have got to do better than that. Well, management hopes to do better, and finishing its exit from Kentucky this quarter will be a start.

Last May they announced that the leases with Omega Healthcare Investors on 10 SNFs with 885 beds in Kentucky were going to be transferred to another operator. The state has been a mess on the litigation front, and few operators seem to want to be there anymore. Diversicare’s Kentucky portfolio had an average census of 73.2% in the second quarter. Tough to make money on that performance even in a good liability state.

The company also announced increased reserves, now totaling $9.5 million, after they reached an agreement in principle with the Department of Justice related to some no-no’s in therapy billing going back to 2010 under the previous regime. We are sure that spooked some investors who decided to bail.

On the positive side, with its SNFs in Texas having an average occupancy of just 63.5%, the company has expanded its participation in the QIPP program administered by the Texas Health and Human Service Commission. The QIPP program provides for supplemental Medicaid reimbursement for facilities that achieve certain quality measures. Diversicare has had one facility in the program and has now added another 11 facilities.

There was no estimate as to the additional revenues, but it has to total at least a few million dollars. With a recent quarterly EBITDA of $600,000, that is meaningful. And with a market cap hovering around $15 million, anything will help push value. Once they can put Kentucky behind them, management will be able to focus on the future and not the past problems. The stock did have a nice bump up in value yesterday, but on minimal trading volume.