Ensign Looks to Apply Skilled Nursing Strategy to Assisted Living, Home Health

Major skilled nursing provider The Ensign Group (Nasdaq: ENSG) has its sights set on assisted living and home health expansion, citing the potential for higher stockholder value and less competition for their target properties.

The company has applied the strategy that executive vice president Chad Keetch said has brought skilled nursing success: vesting significant power in local operators to make decisions, and targeting underperforming properties for turnaround.

“Skilled nursing is obviously still our core business, but we’ve also been growing recently in these other lines of business,” Keetch said during a Wednesday investment presentation at Oppenheimer & Co.’s Annual Healthcare Conference in New York City.


Ensign’s assisted and independent living revenues jumped from about $41 million in 2013 to $136.6 million in 2017, driven by the acquisition of what Keetch called “C-plus, B-minus” properties. By installing new leadership and instituting new cost structures, Ensign can raise those grades to a B-plus or A-minus, then position the properties as a more affordable alternative to other assisted and independent living options in a given area.

“Oftentimes, assisted living facilities may not be as good at stacking pennies as we are in the skilled nursing world, and that background helps us significantly,” he said. “On the acquisitions side, there happens to be a lot less competition for these types of assisted living assets, and we see significant growth opportunities in this business.”

The company now has 5,084 independent and assisted living units, along with 24 home health and home care agencies and 22 hospice agencies. Those businesses account for about 15% of Ensign’s annual revenues; for comparison, the operator has 18,870 skilled nursing beds.


Skilled nursing turnarounds

It’s a strategy that Ensign has used to grow its skilled nursing portfolio, which now stands at 181 facilities. The Mission Viejo, Calif.-based company acquires facilities with lower star ratings, then installs new leadership — sometimes looking outside of the long-term care industry.

“They come to us with that experience, we teach them the health care side of things, and then empower them to run these businesses the way they should be run,“ Keetch said.

Ensign gives its local leaders wide latitude in establishing vendor relationships, setting wages, and managing staffing levels, which both the company and landlord CareTrust REIT, Inc. (Nasdaq: CTRE) have said helps the large-scale operator adapt to regional trends.

Keetch specifically pointed to statistics showing gains in occupancy, skilled mix revenue, and EBITDAR margins in the first five quarters following Ensign’s acquisition of a property; for instance, occupancy typically increases by about 303 basis points. Part of that success, he said, comes from keeping therapy in-house.

“For us, it’s an interdisciplinary approach, and the therapists and the nurses work side-by-side as employees of the facility,” Keetch said.

Those ancillary services allow Ensign buildings to gradually accept higher-acuity patients, which in turn boosts Medicare reimbursements: In 2017, the company’s recently acquired properties had Medicare rates of $506, while its same-store rate was $602.

“As we improve our reputation, as we implement different care systems within the facility, and really prove to the local health care community that we can take sicker and sicker people, we see that improvement in our Medicare rates,” he said.

Assisted living, home health

Keetch noted that assisted living and home health operators tend to trade at higher prices than players in the SNF space — including Ensign. To combat that and potentially boost value, the company has begun reporting assisted living and home health results separately.

“We think there’s a lot of value there that we’re not getting,” he said.

Should the market not respond to those statistics, Keetch said the company is willing to “look at other strategic alternatives — that don’t include selling those businesses, by the way.”

Written by Alex Spanko

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