Diversicare Looks to Texas Medicaid Boosts, Expense Cuts to Combat Losses

In an effort to turn around a string of shaky quarterly financial results and get back in the Nasdaq’s good graces, skilled nursing operator Diversicare (Nasdaq: DVCR) has its sights set on expense-structure changes and supplemental payment programs in Texas.

The Brentwood, Tenn.-based operator recorded a net loss from continuing operations of $3.3 million, or 52 cents per share, for the first quarter of 2019, compared with a net loss of $100,000, or one cent per share in the year-ago period. Revenue for the first quarter came in at $134.4 million, compared with $141.3 million for the year-ago quarter.

The decrease was primarily due to the disposition of three facilities in Kentucky and a decline in total patients served at same-store centers, Diversicare president and CEO Jay McKnight said on an earnings call last week. Skilled nursing occupancy dropped from 79.9% in the first quarter of 2018 to 78.5% in the first quarter this year, and skilled mix also saw a drop, going from 16.1% to 14.9%, McKnight said on the earnings call.

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Still there were some bright spots; despite the decline, the skilled mix for the first quarter was the highest Diversicare has seen since the first quarter of 2018, McKnight said. In addition, Diversicare’s quarterly Medicare rates rose year over year by $1.38, while Medicaid and managed care rates rose by $4.35 and $2.59 respectively.

Diversicare has struggled of late; it was able to make a profit in the fourth quarter of last year by a slender $400,000, but that gain came after a loss of $7.4 million related to a still-open Department of Justice (DOJ) investigation. The operator also received a delisting warning from Nasdaq after its total market cap fell below the required threshold of $35 million.

To try to combat some of the problems, Diversicare is taking an in-depth look at its operating infrastructure, McKnight said on the call.

“We’ve begun efforts to drive efficiency in certain processes within the organization and to redefine our overhead structure in light of industry headwinds,” he said. “We’ve removed approximately 10% of our non-facility-based positions and have streamlined certain processes to reduce our operating costs. We expect to see the benefits of these efforts in the future quarters.”*

Diversicare is also looking to a program in Texas to improve its results in that state, where it has 1,845 licensed SNF beds. The company recently entered into a transaction to transfer the provider licenses of four SNFs to a Texas medical district participating in the state’s Quality Incentive Payment Program (QIPP), according to the company’s Form 10-Q. Diversicare’s operating subsidiary retained the management of the centers on behalf of the medical district.

The QIPP allows providers to receive additional Medicaid reimbursements for hitting certain quality benchmarks, and the extra cash could be meaningful for the company, McKnight said on the call.

Diversicare, like many other SNFs, was affected by the recent star rating crackdown by the Centers for Medicare & Medicaid Services (CMS), he added. Though he did not go into specifics, McKnight indicated that the update makes comparisons to prior star ratings moot.

“For the quality measure domain where we have historically been a leader, there will be a new bifurcation between quality measures for long-stay and short-stay patients and residents,” he said. “As we see for the staffing domain, it’s predicted that many SNFs will lose star ratings with the changes to quality measures. We will work quickly to align our reporting systems with the new measurements, and are confident that our team will remain a leader in quality care.”

*Editor’s Note: An earlier version of this article misquoted Jay McKnight as saying that Diversicare was cutting “approximately 10% of our non-facility-based physicians.” McKnight actually said “approximately 10% of our non-facility-based positions.” SNN regrets the error.

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