ADVOCAT ANNOUNCES THIRD QUARTER RESULTS

FRANKLIN, Tenn. - (November 14, 2001) - Advocat Inc. (Nasdaq OTC:AVCA) today announced its results for the third quarter ended September 30, 2001. The Company reported a net loss of $9.9 million in the third quarter of 2001, including additional non-cash charges of approximately $8.7 million based on an actuarial review of professional liability costs, compared with net income of $149,000 after non-recurring charges of $359,000 for the same period in 2000. Net revenues increased 5% to $52.8 million compared with $50.3 million in the third quarter of 2000.

“Advocat’s third quarter revenues were up as a result of higher reimbursement rates in selected markets and a slight increase in occupancy,” stated Charles W. Birkett, M.D., chairman and chief executive officer of Advocat Inc. “We also had $4.9 million in net cash generated from operations in the third quarter. Our earnings continue to be affected by higher costs related to professional liability coverage, wages, bed taxes and utilities. In the third quarter, we recorded additional non-cash charges of approximately $8.7 for self-insured patient liability costs based on an actuarial review. These charges were due to an escalation in the number and size of claims anticipated to affect our self-insured professional liability retention.”

Net revenues for the third quarter ended September 30, 2001, increased to $52.8 million compared with net revenues of $50.3 million in 2000. Patient revenues increased 7.5% to $41.9 million compared with $38.9 million in the third quarter of 2000 and were primarily due to increased Medicaid rates in Arkansas and other states, increased Medicare utilization and Medicare rate increases, and a 0.2% increase in occupancy in 2001 compared with 2000. Partially offsetting these increases, the Company closed a facility in August 2000. Resident revenues in the assisted living division were down slightly to $10.1 million from $10.4 million in the third quarter of 2000 primarily due to an 8.3% decrease in resident days, partially offset by an increase in rates. Management fees declined to $768,000 in 2001 from $934,000 in 2000 as a result of lower fees at four facilities. These facilities incurred higher operating costs that reduced management fees under a priority of distribution calculation in the contract covering these four facilities.

“Advocat continues to show progress in building revenues through our plan of increasing Medicare occupancy,” continued Dr. Birkett. “We are also optimistic about higher Medicare reimbursement rates and rate increases in certain states. We continue to focus on improving our operating efficiency without lowering our high standards for patient care.

“Although Advocat continues to improve its operating performance, our future viability is affected by increased professional liability costs. The $8.7 million one-time charge recorded in the third quarter is indicative of the charges confronting our industry and the adverse legal climate facing us.”

Operating expenses, excluding the one-time $8.7 million charge for professional liability costs, increased to $42.5 million in the third quarter of 2001 compared with $38.6 million in the third quarter of 2000. The increase in operating expenses was primarily attributable to cost increases related to professional liability, wages, bed taxes and utilities.  Professional liability, exclusive of the additional charges of $8.7 million, increased to $2.4 million in 2001 from $2.0 million in 2000, an increase of $0.4 million, or 20%. Wages increased to $23.0 million in 2001 from $21.2 million in 2000, an increase of $1.8 million or 8.6%. The increase in wages is due to increased costs associated with increased Medicare census and tighter labor markets in most of the areas in which the Company operates, partially offset by reduced costs associated with reduced Medicaid census.

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 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 September 30, 2001, the Company had negative working capital of $61.2 million primarily as a result of $58.9 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. During the third quarter, Advocat extended the maturity of $2.4 million in mortgage notes from August 2001 to August 2002. 

The Company will have a conference call on November 15, 2001, at 10:00 a.m. (central time) to review third quarter results. The conference call will be simulcast on the Internet at www.viavid.com

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. is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet services.

Advocat Inc. operates 120 facilities including 56 assisted living facilities with 5,453 units and 64 skilled nursing facilities containing 7,230 licensed beds as of September 30, 2000. The Company operates facilities in 12 states, primarily in the Southeast, and four provinces in Canada.