Nimble, regional operators have been the belles of the ball in skilled nursing over the last few years, but the leader of the nation’s largest chain says he wouldn’t trade his scale for anything.
“The advantages of my scale well outweigh the negatives of my scale,” George Hager, CEO of Genesis HealthCare (NYSE: GEN), told SNN on the latest episode of our podcast series, “Rethink.”
The Kennett Square, Pa.-based operator has seen its share of turmoil over the last few years, reporting multiple consecutive quarters of losses and enduring an occasionally messy divorce from one of its top landlords, the Irvine, Calif.-based Sabra Health Care REIT (Nasdaq: SBRA). But Hager has expressed optimism about the landscape ahead, and he vigorously defended the viability of Genesis’s footprint of more than 400 buildings in 29 states during his “Rethink” appearance.
Head over to Apple Podcasts, Google Play, or Soundcloud to download the full interview — at around 30 minutes, it’s the perfect length for your commute or workout. If you like what you hear, catch up on our previous “Rethink” episodes with Sabra CEO Rick Matros and Anne Tumlinson Innovations CEO Anne Tumlinson, and keep an eye out for the next monthly installment over the coming weeks.
Here are some highlights from the wide-ranging conversation with Hager, condensed and edited for clarity.
Don’t count out scale.
“One of my friends has a very strong view on that, who I used to lease some properties from, based out in California, and I would say this to that question: First, there’s no question that health care is a local business.
The hospital referral source … even the payers that are looking for high-quality skilled nursing and post-acute care providers in the market — they’re looking for those providers that have strong local-market reputations, and a hospital in Southern California could care less about the performance or the reputation of Genesis HealthCare in Maryland, quite frankly. So I do think that health care must be looked at [as], and is, a local business.
I would argue, with a few exceptions which I’ll give you, that there are no disadvantages of having the scale that we have, at least from an operating perspective, because you look at the way Genesis has always operated this business: We operate the business on a regional basis. We operate our business with four regional offices and two satellite offices. Those satellite offices and regional offices are no different from a corporate office of a regional operator.”
But scale also brings negative attention.
“I would say the negatives to my scale are not operational. They’re not nimbleness in the local market. The negatives of my scale are a function of my scale: Genesis HealthCare, with 50,000 beds, New York Stock exchange company, has a very large target on its back. There’s no question that there are functions and industries out there that target the skilled nursing industry, and if you’re going to target a company for litigation, you’re going to target the highest-profile, largest company with the deepest pocket and the largest insurance policies.”
The demographic wave will be gradual.
“My personal view is we’re not going to see a large wave here. I think what we will see, though, is continued, small, incremental improvements in census. As we continue to go through the post-Depression-era birth rates, and the post-World War II birth rates, and ultimately the baby boom birth rates — which were obviously very significant — you’ll begin to see significant increases in the 85-plus population over time, and therefore increased demand for our service. As I look out the two or three years, I think the impact will be incremental, but I think it will be steady. It will not fluctuate wildly.”
The census tide could be turning.
“What makes me optimistic for the future is what I’m seeing principally on the census side of our business. We have seen declining census, period over period, consistent decline, for the last four years. And that decline is clearly flattening. … For the first time in that four-year period, we have seen census levels in the current year higher than they were in the prior year, same period. And that trend reversed itself, going from declining census to modestly increasing census in the fourth week of October, and has sustained itself.”