10-Q 1 meridianfiling10q93003.txt MERIDIAN 10Q FOR QUARTER ENDING 9/30/03 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) { X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to For Quarter Ended September 30, 2003 Commission file number 000-17596 Meridian Healthcare Growth and Income Fund Limited Partnership (Exact Name of Registrant as Specified in its Charter) Delaware 52-1549486 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 300 East Lombard Street, Suite 1200 Baltimore, Maryland 21202 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (410) 727-4083 225 East Redwood Street Baltimore, Maryland 21202 (Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP INDEX Page No. CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS 2 Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Earnings 4 Condensed Consolidated Statement of Partners' Capital 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 Item 4. Controls and Procedures14 Part II. Other Information Item 1. through Item 6. 14-21 Signatures 22 MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Cautionary Statement Regarding Forward Looking Statements Statements made in this report, and in our other public filings, which are not historical facts contain "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to: o certain statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations," such as our ability to meet our liquidity needs, scheduled debt and interest payments and expected future capital expenditure requirements and the expected effects of government regulation on reimbursement for services provided; and o certain statements in the Notes to Condensed Consolidated Financial Statements (Unaudited). The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. You are cautioned that these statements are not guarantees of future performance and that actual results and trends in the future may differ materially. Factors that could cause actual results to differ materially include, but are not limited to the following: o changes in the reimbursement rates or methods of payment from Medicare and Medicaid, or the implementation of other measures to reduce the reimbursement for our services; o the expiration of enactments providing for additional governmental funding; o efforts of third party payors to control costs; o the impact of federal and state regulations; o changes in payor mix and payment methodologies; o further consolidation of managed care organizations and other third party payors; o competition in our business; o an increase in insurance costs and potential liability for losses not covered by, or in excess of, our insurance; o competition for qualified staff in the healthcare industry; o our ability to control operating costs, and generate sufficient cash flow to meet operational and financial requirements; and o an economic downturn or changes in the laws affecting our business in those markets in which we operate. These risks are described in more detail in our Annual Report on Form 10-K. In addition to these factors and any risks and uncertainties specifically identified in the text surrounding forward-looking statements, any statements in this report or the reports and other documents filed by us with the SEC that warn of risks or uncertainties associated with future results, events or circumstances also identify factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as may be required under applicable securities law. -2- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Condensed Consolidated Balance Sheets (Dollars in thousands)

See accompanying notes to condensed consolidated financial statements. -3- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Condensed Consolidated Statements of Earnings (Unaudited) (Dollars in thousands except per unit amounts)

See accompanying notes to condensed consolidated financial statements -4- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Condensed Consolidated Statement of Partners' Capital For the Nine Months Ended September 30, 2003 and 2002 (Unaudited) (Dollars in thousands)

See accompanying notes to condensed consolidated financial statements -5- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMTIED PARTNERSHIP Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, (Unaudited) (Dollars in thousands)

See accompanying notes to condensed consolidated financial statements. -6- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Notes to Condensed Consolidated Financial Statements September 30, 2003 (Unaudited) NOTE 1 - THE FUND AND BASIS OF PREPARATION Meridian Healthcare Growth and Income Fund Limited Partnership (the Fund) was organized under the laws of the State of Delaware and will continue to operate through December 31, 2037, unless terminated sooner under the provisions of the Partnership Agreement. The Fund's Administrative General Partner is Brown Healthcare, Inc. and the Fund's Development General Partner is Meridian Healthcare Investments, Inc. Brown Healthcare Holding Co., Inc. is the Fund's Assignor Limited Partner. Meridian Healthcare Investments, Inc. is a subsidiary of Genesis Health Ventures, Inc. (Genesis). The Fund owns 98.99% limited partnership interests in each of the seven operating partnerships. The Fund, through its seven operating partnerships, derives substantially all of its revenue from extended healthcare provided to nursing center residents including room and board, nursing care, drugs and other medical services. The accompanying condensed consolidated financial statements of Meridian Healthcare Growth and Income Fund Limited Partnership (the "Fund") do not include all of the information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America. The unaudited interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. The Fund has made a number of estimates relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. NOTE 2 - RELATED PARTY TRANSACTIONS The Fund is obligated to pay Brown-Healthcare, Inc. (Administrative General Partner) an annual administration fee of the greater of $75,000 per year or 1/2 of 1% of the Fund's annual revenues. The nursing centers owned by the operating partnerships are managed by Meridian Healthcare, Inc., an affiliate of Meridian Healthcare Investments, Inc. (Development General Partner), under the terms of existing management agreements which provide for management fees equal to 5% of the annual revenues of each nursing center. Certain of the operating partnerships also purchase drugs and medical supplies and other services from affiliates of the Development General Partner. Such purchases are in turn billed to patients or third party payors at prices which on average approximate the nursing center's cost. Transactions with these related parties for the three and nine months ended September 30, 2003 and 2002 are as follows:

-7- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Notes to Condensed Consolidated Financial Statements September 30, 2003 (Unaudited) NOTE 2 - RELATED PARTY TRANSACTIONS (Continued) The Development General Partner loaned the Fund $597,000, as required by the Cash Flow Deficit Guaranty Agreement, to support the operating deficits generated by the Mooresville, Salisbury and Woodlands nursing centers during each center's first two years of operations subsequent to the Fund's acquisition of partnership interests. Loans outstanding under this arrangement, including accumulated interest from inception of the loan at 9% per annum, were $1,330,000 at September 30, 2003 and $1,292,000 at December 31, 2002. The Fund is obligated to repay these loans 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. NOTE 3 - DEBT The Fund closed its mortgage loan refinancing with a new bank for loans totaling $24,000,000 on June 12, 2000. The renewal terms became effective on June 12, 2000 and provide for a term of five years at an interest rate of 9.75%. Monthly payments of $229,886 are 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%. 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 established a $4,000,000 revolving credit facility with the same lender. As of September 30, 2003, the Fund had borrowed $227,000 under this credit facility to fund financing fees incurred in connection with the amendment of mortgage terms. Borrowings under the credit facility bears interest at a floating rate, which equals the announced commercial prime rate. The bank can renew the credit facility each year for a one-year extension. NOTE 4 - CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES The Fund receives revenues from Medicare, Medicaid, private insurance, self-pay residents, and other third party payors. The Medicaid and Medicare programs are highly regulated. The failure of the Fund to comply with applicable reimbursement regulations could adversely affect its business. The Fund monitors its receivables from third party payor programs and reports such revenues at the net realizable value expected to be received. On December 15, 2000, Congress passed the Benefits Improvement Protection Act that increased the nursing component of the federal prospective payment system's rates by 16.7% (approximate) for the period from April 1, 2001 through September 30, 2002. The legislation also changed the 20% add-on to 3 of the 14 rehabilitation resource utilization group categories to a 6.7% add-on to all 14 rehabilitation resource utilization group categories beginning April 1, 2001. The Medicare Part B consolidated billing provision of the Balance Budget Refinement Act was repealed except for Medicare Part B therapy services and the moratorium on the $1,500 therapy caps was extended through calendar year 2002. These changes had a positive impact on operating results. A number of provisions of the Balance Budget Refinement Act and the Benefits Improvement and Protection Act enactments, providing additional funding for Medicare participating skilled nursing facilities, expired on September 30, 2002 (the Skilled Nursing Facility Medicare Cliff). Effective October 1, 2002, Medicare rates adjusted for the Skilled Nursing Facility Medicare Cliff were increased by a 2.6% annual market basket adjustment. For the Fund, the net impact of these provisions is estimated to adversely impact annual revenue beginning October 1, 2002 by approximately $1.2 million. The expiration of these provisions after considering the 2.6% annual market basket adjustment, has reduced our Medicare per diems per beneficiary, on average, by approximately $24, resulting in reduced revenue of approximately $900 thousand in the Fund's first nine months of fiscal 2003. -8- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Notes to Condensed Consolidated Financial Statements September 30, 2003 (Unaudited) NOTE 4 - CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES (Continued) On August 4, 2003, the Centers for Medicare & Medicaid Services (CMS) published in the Federal Register the final fiscal year 2004 skilled nursing facility prospective payment system rules effective October 1, 2003. The final rules make two significant enhancements to the market basket adjusting base rates by 6.26% (3% increase in the annual update factor and a 3.26% upward adjustment correcting for previous forecast errors). These two changes are estimated to increase Medicare payment rates per patient day by $19. The final rules also provide for the continuation through fiscal year 2004 of certain payment add-ons which were authorized in the Balanced Budget Refinement Act of 1999 to compensate for non-therapy ancillaries. 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. -9- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Fund closed its mortgage loan refinancing with a new bank for loans totaling $24,000,000 on June 12, 2000. The renewal terms became effective on June 12, 2000 and 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%. 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. As of September 30, 2003, the Fund had borrowed $227,000 under this credit facility to fund financing fees incurred in connection with the amendment of mortgage terms, discussed above. The Fund will perform approximately $1 million of non-routine capital improvements to enhance the functionality and marketability of its Maryland centers. The Fund expects to draw on its line of credit facility to fund these improvements, as necessary. The Fund's working capital (excluding the current portion of long-term debt) decreased $703,000 to $4,114,000 at September 30, 2003 as compared to $4,817,000 at December 31, 2002. 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 $3,215,000 for the nine-month period ended September 30, 2003 as compared to $2,573,000 for the same period of 2002. This increase in cash flow was due primarily to lower payments of accounts payable and other accrued expenses resulting from timing of payments offset by decreased accounts receivable collections. Cash used in investing activities for the nine-month period ended September 30, 2003 was $1,247,000 and included improvements to the Fund's seven operating facilities. Similar improvements made during the first nine months of 2002 were $1,001,000. Cash used in financing activities for the nine-month period ended September 30, 2003 was $2,095,000 and included the repayment of long term debt of $491,000 and distributions to partners totaling $1,604,000. The Fund believes that the short-term liquidity needs will be met through expected cash flow from operations and available working capital from the existing revolving 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 $1,330,000 at September 30, 2003 and $1,292,000 at December 31, 2002. On November 14, 2003 the Fund will make its third quarter 2003 distribution to partners of $583,000, representing a 6% return. Based on operating results through the third quarter and the outlook for the final quarter of 2003, the Fund expects a similar distribution for the fourth quarter. 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. -10- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue Sources The Fund receives revenues from Medicare, Medicaid, private insurance, self-pay residents, and other third party payors. The healthcare industry is experiencing the effects of the federal and state governments' trend toward cost containment, as government and other third party payors seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers. These cost containment measures, combined with the increasing influence of managed care payors and competition for patients, have resulted in constrained rates of reimbursement for services provided by the Fund. A number of provisions of the Balance Budget Refinement Act and the Benefits Improvement and Protection Act enactments, providing additional funding for Medicare participating skilled nursing facilities, expired on September 30, 2002 (the Skilled Nursing Facility Medicare Cliff). Effective October 1, 2002, Medicare rates adjusted for the Skilled Nursing Facility Medicare Cliff were increased by a 2.6% annual market basket adjustment. For the Fund, the net impact of these provisions is estimated to adversely impact annual revenue beginning October 1, 2002 by approximately $1.2 million. The expiration of these provisions after considering the 2.6% annual market basket adjustment, has reduced our Medicare per diems per beneficiary, on average, by approximately $24, resulting in reduced revenue of approximately $900 thousand in the Fund's first nine months of fiscal 2003. On August 4, 2003, the Centers for Medicare & Medicaid Services (CMS) published in the Federal Register the final fiscal year 2004 skilled nursing facility prospective payment system rules effective October 1, 2003. The final rules make two significant enhancements to the market basket adjusting the base rates by 6.26% (3% increase in the annual update factor and a 3.26% upward adjustment correcting for previous forecast errors). These two changes are estimated to increase Medicare payment rates per patient day by $19. The final rules also provide for the continuation through fiscal year 2004 of certain payment add-ons which were authorized in the Balanced Budget Refinement Act of 1999 to compensate for non-therapy ancillaries. 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. Results of Operations Three Months Ended September 30, 2003 vs Three Months Ended September 30, 2002 Net earnings for the Fund were $538,000 for the three months ended September 30, 2003 as compared to $551,000 for the same period in fiscal year 2002. The decrease in earnings is primarily due to an increase in operating costs, partially offset by an increase in Medicaid revenues. Overall revenues of $16,028,000 increased $415,000 or 2.7% for the three months ended September 30, 2003 compared to $15,613,000 for the same period in fiscal year 2002. The increase in revenue is primarily due to a net increase in revenues from Medicaid and Medicare patients of $431,000. Medicaid revenue of $9,703,000 increased $545,000 for the three months ended September 30, 2003 compared to the same period in the prior year. The Medicaid revenue growth is primarily due to overall rate increases, and the settlement of prior period Medicaid audits. Medicaid rates increased 5.6% driven primarily by the four Maryland centers, which received their annual Medicaid rate adjustment in July 2003. Maryland Medicaid settlements for fiscal year 1999 audits were finalized, resulting in increased Medicaid revenue of $358,000. Medicare revenue of $3,998,000 decreased $114,000 or 2.8% for the three month period ended September 30, 2003 compared to the same period in fiscal year 2002. This decrease is primarily due to a reduction of rates. Investment and other income decreased $22,000 due to lower income interest earned. -11- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) Third quarter 2003 expenses of $15,490,000 increased $428,000 or 2.8% from $15,062,000 for the three months ended September 30, 2002. Operating expenses increased $522,000 or 4.1% in the third quarter of 2003 as compared to the same period in fiscal year 2002. This increase is primarily due to the increased cost of nursing services and ancillary costs. Nursing costs increased $182,000 for the three months ended September 30, 2003 as compared to the same period in fiscal year 2002. This increase is primarily due to increases in salary, wages, and employee benefits, which is partially offset by a decrease in the cost of temporary nurse staffing. Salary, wage, and benefits expense for nurses increased $610,000, while temporary nurse staffing expense decreased $428,000 for the three months ended September 30, 2003 compared to the same period in fiscal year 2002. Ancillary expenses for the three months ended September 30, 2003 increased $336,000 or 18.7% compared to the same period in fiscal year 2002, which is attributable to the growth in the Medicare census, whose customers have high ancillary usage. The average daily Medicare census increased 5.8% for the three month period ended September 30, 2003 compared to the same period in fiscal year 2002. The remaining increase in operating costs is due to general inflationary cost increases. Management and administrative fees of $880,000 increased $19,000 or approximately 2.2% for the third quarter 2003 compared to the same period in 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 increased $58,000 or 20.1% in the third quarter of 2003 as compared to the same period in fiscal year 2002. This increase is a result of increased legal, advertising - help wanted, and purchased services, which increased $31,000, $8,000, and $9,000, respectively, over the same period in the prior year. The remaining increase is due to general inflationary cost increases. Interest expense decreased $199,000 for the three months ended September 30, 2003 as compared to the same period in fiscal year 2002. The decrease in interest expense is due to the reduction of the interest rate from 9.75% to 6.5% effective February 1, 2003. Nine Months Ended September 30, 2003 vs Nine Months Ended September 30, 2002 Net earnings for the Fund were $1,237,000 for the nine months ended September 30, 2003 as compared to $1,869,000 for the same period in fiscal year 2002, representing a decrease of $632,000 or 33.8 %. Overall revenues of $46,778,000 increased $671,000 or 1.5 % for the nine months ended September 30, 2003 compared to $46,107,000 for the same period in fiscal year 2002. This increase in revenue is primarily due to a net increases in revenue from Medicaid and Medicare patients. Medicaid and Medicare revenue increased $1,178,000 to $40,086,000 for the nine month period ended September 30, 2003 compared to the same period in 2002. Medicaid revenue for the nine months ended September 30, 2003 increased $1,587,000 compared to the same period in the prior year. The Medicaid revenue growth is primarily due to overall rate increases, and the settlement of prior period Medicaid audits. Medicaid rates increased 6.3 % 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 $503,000. Medicare revenue decreased $409,000 or 3.3% for the nine month period ended September 30, 2003 compared to the same period in fiscal year 2002. This decrease is primarily due to a decrease in the Medicare rate of approximately 6.3% and decreased utilization of Medicare Part B services. Private patient revenue decreased $466,000 to $6,637,000 for the nine months ended September 30, 2003 as compared to the same period in 2002. This decrease is due to a decline in the census, partially offset by higher rates. The Private average daily census for the nine months ended September 30, 2003 decreased 14% or 16 customers compared to the same period in fiscal year 2002. -12- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) Overall expenses increased $1,303,000 or 2.9% to $45,541,000 for the nine months ended September 30, 2003 as compared to $44,238,000 for the same period in fiscal year 2002. Operating expenses increased $1,927,000 or 5.1% to $39,491,000 for the nine months ended September 30, 2003 as compared to the same period in fiscal year 2002. This increase is primarily due to the increased cost of nursing services, ancillary costs, and property and liability insurance, which is being partially offset by a decrease in bad debt expense. Nursing costs increased $831,000 for the nine months ended September 30, 2003 as compared to the same period in fiscal year 2002. This increase is primarily due to increases in salary, wages, and employee benefits, which is partially offset by a decrease in the cost of temporary nurse staffing. Salary, wage, and benefits expense for nurses increased $1,590,000, while temporary nurse staffing expense decreased $759,000 for the nine months ended September 30, 2003 compared to the same period in fiscal year 2002. Ancillary expenses for the nine months ended September 30, 2003 increased $607,000 or 11.4 % compared to the same period in fiscal 2002, attributable to the growth and the Medicare census whose customers have high ancillary usage. The average daily Medicare census increased 4.8% for the nine month period ended September 30, 2003 compared to the same period in fiscal year 2002. Property and Liability insurance increased $122,000 for the nine months ended September 30, 2003 as compared to the same period in fiscal year 2002 due to the annual rate increase effective June. Bad debt expense decreased $280,000 or 28.2% for the nine months ended September 30, 2003 as compared to the same period in fiscal year 2002. The remaining increase in operating costs is due to general inflationary cost increases. Interest expense decreased $ 530,000 for the nine months ended September 30, 2003 as compared to the same period in fiscal year 2002. This decrease in interest expense is due to the reduction of the interest rate from 9.75% to 6.5% effective February 1, 2003. Critical Accounting Policies We consider an accounting policy to be critical if it is important to our financial condition and results, and requires significant judgment and estimates on the part of management in its application. Our 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. We believe that the following represents our critical accounting policies, which are described in our most recent Annual Report on Form 10-K: o Allowance for Doubtful Accounts o Revenue Recognition During the current quarter, we did not make any material changes to our estimates or methods by which estimates are derived with regard to our critical accounting policies. -13- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP PART I. FINANCIAL INFORMATION Item 3. Quantitative and Qualitative Disclosures About Market Risk The Fund has exposure to changing interest rates and is currently not engaged in hedging activities. Interest on the Fund's $22.9 million mortgage was at a fixed rate of 9.75% through January 31, 2003. Effective February 1, 2003 the Fund's mortgage is at a fixed rate of 6.5%. Item 4. Controls and Procedures Within the 90-day period prior to the filing of the quarterly report, an evaluation was carried out under the supervision and with the participation of the Fund's management, including the Chief Executive Officer (or CEO) and Chief Financial Officer (or CFO), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Fund's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Fund in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in the Fund's internal controls or in other factors that could significantly affect the disclosure controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II. OTHER INFORMATION Item 1. Legal Proceedings Inapplicable Item 2. Changes in Securities and Use of Proceeds Inapplicable Item 3. Defaults upon Senior Securities Inapplicable Item 4. Submission of Matters to a Vote of Security Holders Inapplicable Item 5. Other Information Inapplicable -14- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Item 6. Exhibits and Reports on Form 8-K a) Exhibits Exhibit 31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.3 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.4 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b) Reports on Form 8-K: None -15- 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, Robert H. Fish, certify that: 1. I have reviewed this quarterly report on Form 10-Q 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) 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 c) 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 audit committee of 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: 11/7/03 By: /s/ Robert H. Fish Robert H. Fish Chief Executive Officer Meridian Healthcare Investments, Inc. Development General Partner -16- 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, George V. Hager, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q 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) 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 c) 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 audit committee of 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: 11/07/03 By: /s/ George V. Hager, Jr. George V. Hager, Jr. Chief Financial Officer Meridian Healthcare Investments, Inc. Development General Partner -17- Exhibit 31.3 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, John M. Prugh, certify that: 1. I have reviewed this quarterly report on Form 10-Q 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) 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 c) 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 audit committee of 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: 11/14/03 By: /s/ John M. Prugh John M. Prugh Chief Executive Officer Brown-Healthcare, Inc. Administrative General Partner -18- 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 quarterly report on Form 10-Q 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) 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 c) 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 audit committee of 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: 11/14/03 By: /s/ Timothy M. Gisriel Timothy M. Gisriel Chief Financial Officer Brown-Healthcare, Inc. Administrative General Partner -19- 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") Quarterly Report on Form 10-Q for the period ending September 30, 2003 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: 11/07/03 By: /s/ Robert H. Fish Robert H. Fish Chief Executive Officer Meridian Healthcare Investments, Inc. Development General Partner Date: 11/07/03 By: /s/ George V. Hager, Jr. George V. Hager, Jr. Chief Financial Officer Meridian Healthcare Investments, Inc. Development General Partner -20- 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") Quarterly Report on Form 10-Q for the period ending September 30, 2003 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: 11/14/03 By: /s/ JohnM. Prugh John M. Prugh Chief Executive Officer Brown-Healthcare, Inc. Administrative General Partner Date: 11/14/03 By: /s/ Timothy M. Gisriel Timothy M. Gisriel Chief Financial Officer Brown-Healthcare, Inc. Administrative General Partner -21- 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: 11/14/03 By: /s/ John M. Prugh John M. Prugh President and Director Brown-Healthcare, Inc. Administrative General Partner DATE: 11/14/03 By: /s/ Timothy M. Gisriel Timothy M. Gisriel Treasurer Brown-Healthcare, Inc. Administrative General Partner -22-

MERIDIAN HEALTHCARE GROWTH & INCOME FUND LTD PARTNERSHIP 10-Q