Ensign CEO: Small-market model is best defense against nursing home headwinds

Ensign Group (Nasdaq: ENSG) management is confident of its future growth and financial stability at this stage of the pandemic, as occupancy rates continue to improve while labor issues are attenuating.

Ensign CEO Barry Port also pointed to the most recent SNF final rule issued by the Centers for Medicare & Medicaid Services (CMS) during the company’s Q2 earnings call, noting the more favorable upside. by 2.7% in payments for 2023, as well as the two-year spread of Patient-Oriented Payment Model (PDPM) reductions.

“It’s certainly encouraging to see the recent events on the increase in market basket adjustment and the two-year trail on parody adjustments,” Port added.

Given the successful track record of the industry making its voice heard by CMS, most recently with the Final Rule, Port thinks any mandate the agency seeks to implement will likely be reasonable.

“We’re not worried about what this will end up looking like, primarily because we feel like we have a seat at the table,” Port noted, referring to the federal minimum staffing ratio that is expected to be offered l ‘next year. .

Port said Ensign’s localized business model was “built for times like these”, underscoring the importance of locally led leadership that has enabled the company to push through Covid trends, d effectively use government waivers and navigate political climates.

“Our operating model allows each operator to independently adapt to the needs of their local markets, while leveraging metrics and insights gained through best practices enabled through our transparent culture, including methods to attract new healthcare professionals to our workforce and to retain and develop existing staff,” Port said.

Breaking down the success of small markets in numbers

Ensign’s results amid labor market challenges and a global pandemic are “no coincidence,” Port added.

In terms of labor, Ensign reported a 4% decline in agency use from the first fiscal quarter across all areas. Another workforce metric that Ensign has paid close attention to — turnover — lags behind peers, Port said, though he was unable to give. a consolidated figure when calling.

Nursing home operators are seeing an average 25% increase in revenue over last year, according to the 45th Annual Nursing Home Pay and Benefits Report released Thursday by the Hospital & Healthcare Compensation Service. Ensign, meanwhile, has seen an improvement in revenue year over year.

“These two measures give us a lot of hope as to where we are headed. Granted, wages are higher and that’s expected, but as reimbursement adjusts around that, when we look at what we can control, we’re pretty optimistic about the way forward,” Port said. .

Ensign operators were also able to achieve sequential growth in overall occupancy for the sixth consecutive quarter, Port said. Same store and transitional properties occupancy increased 1.8% and 6.4% from Q2 2021, respectively.

Ensign reported a 14.7% year-over-year increase in revenue despite a continued challenging operating environment for nursing homes, and adjusted EBITDA growth of 15%. The company raised its full-year guidance from $4.05 to $4.15 in earnings per share (EPS) and its full-year revenue guidance from $2.96 billion to $3 billion.

Total qualified services revenue was $702.5 million for the second quarter, an increase of 14.6% over the second quarter of 2021.

In terms of acquisitions, Ensign signed 11 acquisitions in the quarter and after, Ensign CIO Chad Keetch said on the call, while its Standard Bearer real estate investment trust (REIT) acquired six new assets. qualified nurses.

The acquisition activity brings Ensign’s growing portfolio to 259 healthcare operations in 13 states.

As Ensign Accelerates Growth and Investments, Increases Margins and Improves Reimbursements, While Issues Higher Guidance, Stifel Analysts Say Company’s Steady Growth and Profitability Deserves More Credit .

Market-specific business model in action

Port cited Atrea Health and Rehabilitation in Phoenix, Arizona and Panorama Gardens Nursing and Rehabilitation in Los Angeles as other examples of Ensign’s market-specific business model in action.

The 161-bed Atrea facility was purchased just eight months ago as a turnaround facility, Port said. The building was in a “hopeless situation”, placed on CMS’s special list and falling to a one-star Medicare rating.

In the first two quarters since acquisition, the Atrea team has increased occupancy by 12% and revenue served by nearly 40%.

Facility leaders relied on cluster partners in the market to help support training initiatives, Port said, and in turn, facility staff implemented and refined best practices to improve results. and efficiency.

Existing employees “have become incredibly effective department heads,” Port added, after years of underutilization and underappreciation.

Panorama is a legacy facility of the same store and has the lowest turnover rates in the entire Ensign organization at 14%, Port continued. The Los Angeles facility was able to maintain a 98% occupancy rate for the second fiscal quarter without hiring agency staff.

Total qualified days increased 20% at Panorama, and managed care days increased 20% from Q2 2021. A “relentless focus on eliminating waste and managing fundamentals” has also resulted in a 56% increase in EBITDA compared to Q2 2021.

“These facilities, and many others like them, share their strategies and processes with their cluster partners and the rest of the organization. This allows these best practices to spread quickly and improve performance everywhere,” Port said.

Ensign’s Busy Summer offers

Keetch said the team has had a “very busy summer” so far with its 11 new acquisitions in the second quarter, including six SNFs in Texas and one in Nevada.

Other acquisitions include two retirement homes in California, one in Washington, and a “healthcare campus” in Arizona.

The new properties represent expansion into Ensign’s more mature geographies like Arizona and Texas, while Nevada is a new healthcare market for the company.

“We look forward to seeing each of these additions contribute to the success of their clusters and markets as they implement Ensign’s proven operational and clinical principles,” Keetch said.

Standard Bearer added six new SNF real estate operations, all of which will be leased to an Ensign-affiliated tenant, Keetch said. The REIT generated revenue of $17.6 million for the quarter, an increase of 23.8% over the prior year quarter. Funds from operations (FFO) was $12.1 million for 2Q.

The properties include: a 99-bed Premier Care Center in Palm Springs, California; 97-bed Brookside Health Center in Redlands, Calif.; 138-bed Broadway Villa Post Acute in Sonoma, Calif.; as well as the real estate and operations of The Eden of Las Colinas, a 118-bed facility in Irving, Texas; Villa Maria Post Acute and Rehabilitation, a 65-bed facility in Tuscon, Arizona; and Park Manor of McKinney, a 138-bed facility in McKinney, Texas.

The ratio of leased to owned assets will vary depending on the circumstances, Keetch said of the REIT’s assets, as the group focuses “first and foremost” on the operational health of acquisitions.

“These acquisitions continue to showcase one of Standard Bearer’s core strategies, which is to capture the advantage created by Ensign’s operators and properties that have historically been on long-term lease,” said said Keetch.

Standard Bearer comprises 101 company-owned properties, 73 of which are leased to affiliated skilled nursing and senior living facilities.

Looking ahead, Keetch expects Ensign to also have a busy fall and winter, and even more growth through 2023. Pipeline opportunities for the company’s typical property acquisitions and leases are increasing, did he declare. Struggling operators eventually reach a point where they will make their properties available for some sort of transaction.

“In the meantime, we have a handful of new additions that we’re closing in the coming months and continue to see new opportunities arise every week,” Keetch said. “In some cases, especially with larger transactions, prices are still out of whack.”

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