News Release

ADVOCAT ANNOUNCES SECOND QUARTER RESULTS

FRANKLIN, Tenn. (August 14, 2001) - Advocat Inc. (Nasdaq OTC:AVCA) today announced its results for the second quarter ended June 30, 2001.  The Company reported a loss of $2.4 million, or $0.43 per diluted share, in the second quarter of 2001 compared with earnings of $73,000, or $0.01 per share, for the same period in 2000.  Net revenues for the second quarter ended June 30, 2001, increased 4.0% to $50.2 million compared with net revenues of $48.2 million in 2000.

“Advocat’s second quarter revenues were up primarily due to improved reimbursement rates and, secondarily, higher occupancy in our U.S. nursing home facilities,” stated Charles W. Birkett, M.D., chairman and chief executive officer of Advocat Inc.  “Our earnings, however, continue to be affected by higher costs.  Over the past year our professional liability premiums and related reserves have increased very substantially, as have wages in a tight labor market.”

U.S. nursing homes net revenues increased 6.1% to $38.5 million in the second quarter of 2001 compared with $36.3 million in the second quarter of 2000 and were primarily due to increased Medicaid reimbursements in Arkansas and other states, increased Medicare utilization and Medicare rate increases, and a 1.4% increase in occupancy compared with a the second quarter of 2000. The increase in U.S. nursing home revenue was partially offset by a facility that closed in August 2000. Net revenues for U.S. assisted living facilities declined 2.7% to $7.8 million compared with net revenues of $8.1 million in 2000 due to a number of factors which have reduced census. Canadian operations were down 2.1% to $3.8 million compared with net revenues of $3.9 million in the second quarter of 2000.

Operating expenses increased 10.7% to $41.1 million in the second quarter compared with $37.2 million in 2000.  The increase was primarily due to higher wages (+6.5%, +$1.3 million), professional liability insurance costs (+24%, +$480,000), bed taxes associated with the Arkansas reimbursement increase (+$459,000) and utilities (+$331,000).

“We have implemented a plan to enhance our revenues through increased Medicare occupancy and expect to benefit from higher Medicare reimbursement rates as well as certain state Medicaid rates,” continued Dr. Birkett.  “We are also focused on minimizing future increases in expenses through the elimination of excess operating costs, although it is unlikely that we can impact wages and professional liability costs in the near term.”

Advocat previously announced that it had signed a letter of intent to sell its Canadian subsidiary, Diversicare Canada Management Services Co., for $8 million.  No definitive purchase agreement has been reached with the proposed buyer, nor have the consents necessary been yet received.  Although the letter of intent, by its terms, expired on July 31, 2001, Advocat continues its efforts to seek consents to allow the transaction to close as described. No assurances can be given that the sale of Diversicare Canada will be consummated.

At June 30, 2001, the Company had negative working capital of $61.4 million primarily as result of $59.1 million of debt being classified as current liabilities due to Advocat’s covenant non-compliance and other cross-default provisions.  The Company remains in active discussions with its lenders regarding potential waivers, amendments and refinancing alternatives and is hopeful that it can reach terms that will not further jeopardize the future of Advocat.

Forward-looking statements made in this release involve a number of risks and uncertainties, including but not limited to, factors affecting the long-term care industry in general, governmental reimbursement, government regulation, health care reforms, the impact of future licensing surveys, changing economic and market conditions and other risk factors detailed in the Company’s Securities and Exchange Commission filings.

Advocat Inc. operates 120 facilities including 64 skilled nursing facilities containing 7,230 licensed beds and 56 assisted living facilities with 5,425 units as of June 30, 2001.  The Company operates facilities in 12 states, primarily in the Southeast, and four provinces in Canada.