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		SECResponseDraft9_30_2013

ADCARE HEALTH SYSTEMS, INC.

1145 Hembree Road

Roswell, Georgia 30076

October 3, 2013

VIA EDGAR

Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C. 20549-7010

Attention:  Mr. Larry Spirgel

Re:     AdCare Health Systems, Inc.

Form 10-K for the fiscal year ended December 31, 2012

Filed July 8, 2013

Forms 10-Q/A for the quarterly periods ended March 31, 3012, June 30,

2012, and September 30, 2012

Filed July 8, 2013

Response dated August 29, 2013

File No. 001-33135

Ladies and Gentlemen:

On behalf of AdCare Health Systems, Inc. (the "Company"), the undersigned hereby responds to the comments (the "Comments") of the staff (the "Staff") of the United States Securities and Exchange Commission (the "Commission") set forth in the Staff's letter to Mr. Boyd P. Gentry, dated September 27, 2013.  For the convenience of the Staff, the Company has restated in this letter in italics each of the Comments and numbered each of the Company's responses to correspond to the number of each of the Comments. Capitalized terms used herein but not defined herein have the meanings ascribed to them in the Company’s response letter to the Commission dated August 29, 2013.

Form 10-K

Financial Statements

Principles of Consolidation, page 72

1.

 We note your response to comment one explains that the consolidation of the Oklahoma Facilities VIEs did not have the effect of increasing management’s compensation. We note from page 7 of your December 5, 2012 correspondence that there existed a principal/agent  relationship between AdCare and the Oklahoma Facilities Owners. We also note from page 147 of your December 31, 2012 Form 10-K that your former Chief Acquisitions Officer, Mr. Brogdon, served without a fixed salary prior to 2013 but instead received the substantial majority of his compensation for services for the year 2011 in the form of discretionary bonus payments and option stock incentives. We note from the first paragraph of page 150 of the Form 10-K that Mr. Brogdon currently earns a "success fee" for each completed acquisition transaction, and that Mr. Brogdon

earns no such success fee for leased or managed facilities. Confirm for us that Mr. Brogdon and other officers were not compensated for services rendered to facilitate the acquisition of the Oklahoma Facilities. Otherwise please explain how such services rendered in the Oklahoma Facilities transactions effected officer's compensation.

In response to the Staff's Comment, the Company confirms that neither Mr. Brogdon nor any other Company officer received compensation from the Company in connection with (i) the Oklahoma Owners' acquisition of the Oklahoma Facilities or (ii) the Company's consolidation of the Oklahoma Facilities in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K").

2.

 Further in this regard, explain for us why Mr. Brogdon's $200,000 bonus earned for 2011 was omitted from the executive compensation table on page 100 of your December 31, 2011 Form 10-K.

Mr. Brogdon's 2011 bonus was determined and approved by the Compensation Committee of the Company's Board of Directors after the 2011 Form 10-K was filed.  All of Mr. Brogdon's compensation for 2011 and 2012 is disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.

Form 10-Q/A#1 for the quarterly period ended September 30, 2012

Note 2. Restatement of Previously Issued Consolidated Financial Statements, page 11

3.

 We note your response to comment eight and note the following:

•

 The $34,000 adjustment increasing deferred loan costs, net as described on page 13 of your September 30, 2012 Form 10-Q/A#1 is silent regarding the $164,000 increase in interest expense for the fair value of warrants granted to non-employees as indicated in your response letter,

•

 The description of the adjustment to general and administrative expense bridging pages 12 and 13 of your September 30, 2012 Form 10-Q/A#1 is silent about an adjustment to consulting expense, and

•

 The description of the adjustment to property and equipment, net on page 13 of your September 30, 2012 Form 10-Q/A#1 is silent about inappropriately capitalized interest costs.

Accordingly it appears to us that the nature of the adjustments to interest expense and general and administrative expense are unclear. As previously requested, please revise your disclosure of "other adjustments" in the June 30 and September 30, 2012 Forms 10-Q to include an explanation of why material corrections were made to the interest expense line item.

In response to the Staff's Comment, the Company proposes to revise the disclosure of "other adjustments" in its Quarterly Reports on Form 10-Q for the quarters ended June 30, 2012 and September 30, 2012, to explain why corrections were made to Interest expense, net, as set forth below.

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June 30, 2012:  Interest expense, net — Adjustments totaling $350,000 and $349,000 for the three and six months ended June 30, 2012, respectively, related primarily to the following items:

The correction of interest capitalized on the balance sheet that should have been expensed in the interim reporting period in which the costs were incurred during the 2012 year was approximately $269,000 for the three and six months ended June 30, 2012.

The recognition of expense related to the fair value of warrants granted to non-employees in connection with loan financing fees of approximately $81,000 for the three and six months ended June 30, 2012.

September 30, 2012:  Interest expense, net — Adjustments totaling $140,000 and $490,000 for the three and nine months ended September 30, 2012, respectively, related primarily to the following items:

The correction of interest incorrectly capitalized on the balance sheet that should have been expensed in the interim reporting period in which the costs were incurred during the 2012 year was approximately $82,000 and $351,000 for the three months and the nine months ended September 30, 2012, respectively.

The recognition of expense related to the fair value of warrants granted to non-employees in connection with loan financing fees of approximately $83,000 and $164,000 for the three and nine months ended September 30, 2012, respectively.

The correction of $25,000 consulting expense originally recorded to Interest expense, net, reclassified to General and administrative for the three and nine months ended September 30, 2012.

Exhibit 1 and Exhibit 2 attached hereto set forth the reconciliation to Interest expense, net, in the form that the Company proposes to include in Note 2. Restatement of Previously Issued Consolidated Financial Statements in the Company's to be filed: (i) Amendment No. 2 on Form 10-Q/A for the quarter ended June 30, 2012 (the "Form 10/Q/A#2 for June 30, 2012") and (ii) Amendment No. 2 on Form 10-Q/A for the quarter ended September 30, 2012 (the "Form 10-Q/A#2 for September 30, 2012"), respectively.

4.

 We note that the correction made to costs of services, for delays in collection efforts and lack of timely follow-up on open patient accounts during 2012, required an adjustment variously stated as $721,000 and $484,000 in your response to comment nine and in the first paragraph of page 13 of your Form 10-Q/A#1 for September 30, 2012. Please reconcile and correct.

As requested by the Staff, the Company has reconciled the Cost of services for delays in collection efforts and lack of timely follow-up on open patient accounts during 2012.  The Company proposes to revise its disclosure as follows:

The timing of certain adjustments to the provision for bad debts in the appropriate interim reporting period within the 2012 year.  The issues primarily related to required adjustments resulted from the timing of recognition for state recoupments for Medicaid overpayments for certain facilities totaling $403,000 for the nine

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months ended September 30, 2012, the delays in collection efforts and lack of timely follow-up on open patient accounts in 2012 for certain facilities totaling $441,000 and $721,000 for the three and nine months ended September 30, 2012, respectively, offset by the improper recognition of bad debt expense relating to managed care revenue discussed above in the amount of $20,000 and $212,000 for the three and nine months ended September 30, 2012, respectively.

Exhibit 2 attached hereto sets forth the reconciliation to the Cost of services in the form that the Company proposes to include in Note 2. Restatement of Previously Issued Consolidated Financial Statements in its Form 10-Q/A#2 for September 30, 2012.

5.

 Similarly we note that the correction made to general and administrative expenses for interest incorrectly capitalized on the balance sheet required an adjustment variously stated as $159,000 and $94,000 in your response to comment nine and in the sixth paragraph of page 12 of your Form 10-Q/A#1 for September 30, 2012. Please reconcile and correct.

As requested by the Staff, the Company has reconciled the disclosure of the adjustments to  the reported General and administrative expenses incorrectly capitalized on the balance sheet at September 30, 2012.  The Company proposes to revise its disclosure as follows:

The timing of the expense incorrectly capitalized on the balance sheet that should have been expensed in the interim reporting period in which the costs were incurred during the 2012 period of $85,000 and $159,000 for the three and nine months ended September 30, 2012, respectively.

Exhibit 2 attached hereto sets forth the reconciliation to the General and administrative expense in the form that the Company proposes to include in Note 2. Restatement of Previously Issued Consolidated Financial Statements in its Form 10-Q/A#2 for September 30, 2012.

6.

 Please revise your disclosure of the adjustments made to correct reported costs of services to reflect the additional information provided in your response to comment nine. Address in costs of services the $112,000 correction for untimely recorded payroll expense and the reversal of the $480,000 elimination of management fees.

In response to the Staff's Comment, the Company proposes to revise its disclosure of the adjustments to reported Costs of services to reflect (i) the additional information provided in the response to Comment nine and (ii) address in Costs of services the $112,000 correction for untimely recorded payroll expense and the reversal of the $482,000 elimination of management fees, as follows:

The timing of recognition of certain payroll related operating expenses and other necessary adjustments to related accrued liabilities to ensure proper recognition in the appropriate interim reporting period within the 2012 year.  The issues primarily relate to insufficient processes related to accounting for accrued vacation of $34,000 and $838,000 for the three and nine months ended September 30, 2012, respectively; the untimely identification and recognition of expenses associated with certain unemployment tax accrual adjustments of $41,000 and $123,000 for the three and nine months ended September 30, 2012, respectively; and the untimely recording of a payroll expense for a certain facility in the amount of $112,000 for the nine months ended September 30, 2012.

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The adjustment of the reversal of the eliminated management fee expense associated with  the correction in the application of the Company's accounting for certain variable interest entities for approximately $159,000 and $482,000 for the three and nine months ended September 30, 2012, respectively.

Exhibit 2 attached hereto sets forth the reconciliation to the Cost of services in the form that the Company proposes to include in Note 2. Restatement of Previously Issued Consolidated Financial Statements in its Form 10-Q/A#2 for September 30, 2012.

7.

 In your amended 34 Act reports for 2012, where applicable, please make similar revisions, as requested above, to the financial statements provided for the six months ended June 30, 2012 and for three months ended March 31, June 30 and September 30, 2012.

The Form 10-Q/A#2 for March 31, 2012, the Form 10-Q/A#2 for June 30, 2012 and the Form 10-Q/A#2 for September 30, 2012 to be filed by the Company will include the revisions proposed in the Company's responses to the Staff's Comments with the relevant disclosures as necessary.  Exhibit 1 and Exhibit 2 attached hereto set forth the reconciliation to Cost of services, General and administrative and Interest expense, net, in the form which the Company proposes to include in Note 2. Restatement of Previously Issued Consolidated Financial Statements in its Form 10-Q/A#2 for June 30, 2012 and Form 10-Q/A#2 for September 30, 2012, respectively.

8.

 We note your response to comment five. You indicate in your response that certain restated financial covenant metric information has been omitted from the June 30 and September 30, 2012 debt covenant compliance tables. The (***) footnotes to these tables explain that these covenants commence in future quarters. However Sections 7.15 and 7.16 of the loan agreement dated March 30, 2012 between Little Rock HC&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, Woodland Hills HC&R Property Holdings, LLC and The PrivateBank and Trust Company (Exhibit 10.6 to the March 31, 2012 Form 10-Q) appears to include monthly and quarterly debt compliance provisions that were in effect at June 30, 2012 and September 30, 2012. Please clarify and, if necessary, revise your response to comment five and its June 30 and September 30, 2012 debt covenant compliance tables accordingly.

The Company proposes to revise the quarterly restated financial covenant metric for March 31, 2012, June 30, 2012 and September 30, 2012 debt covenant compliance tables as set forth below.  In recent periods, including as of March 31, 2012, June 30, 2012 and September 30, 2012, the Company has not been in compliance with certain financial and administrative covenants. For each instance of such non-compliance, the Company has obtained waivers to such requirements, including, as necessary, modifications to future covenant requirements or the elimination of certain requirements in future periods.

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Period Ended

 March 31, 2012

Credit Facility

  Balance at March 31, 2012 (000's)

 Consolidated or Subsidiary Level Covenant Requirement

 Financial Covenant

 Measurement Period

 Min/Max Financial Covenant Required

 As Reported Financial Covenant Metric Achieved

 As Restated Financial Covenant Metric Achieved

Gemino - Line of Credit

 $6,717

 Consolidated

 Fixed Charge Coverage Ratio (FCCR)

 Quarterly

 1.10

 0.53

 3.49

 *

PrivateBank - Line of Credit (Bentonville LOC)

 $1,308

 Subsidiary

 FCCR

 Quarterly

 1.05

 2.16

 0.89

 **

PrivateBank - Mortgage Note - Homestead, Valley River, Bentonville

 $11,678

 Subsidiary

 EBITDAR (000's)

 Quarterly

 $450

 $702

 $(4)

 *

 Consolidated

 DSCR

 Annual

 n/a

 n/a

 n/a

Square 1 USDA - Term Note Homestead

 $3,578

 Subsidiary

 Current ratio

 Quarterly

 1.00

 0.37

 0.27

 *

 Subsidiary

 Maximum debt to net worth

 Quarterly

 9.00

 7.57

 14.34

 *

 Subsidiary

 Tangible net worth

 Quarterly

 10.0%

 11.7%

 6.5%

 *

PrivateBank - Mortgage Note Woodland Manor

 $4,783

 Subsidiary

 Minimum quarterly EBITDAR (000's)

 Quarterly

 $250

 $301

 $280

 Subsidiary

 Minimum trailing twelve month FCCR

 Quarterly

 1.10

 1.83

 1.92

*     - Waiver or amendment for violation of covenant obtained.

**   - Loan balance was paid in full in Q3 2012. Amount was classified as current liability at Q1 2012.

Period Ended

 June 30, 2012

Credit Facility

  Balance at June 30, 2012 (000's)

 Consolidated or Subsidiary Level Covenant Requirement

 Financial Covenant

 Measurement Period

 Min/Max Financial Covenant Require