How the Ensign Group’s CEOs — All 78 of Them — Built a Skilled Nursing Giant

The Ensign Group (Nasdaq: ENSG) has emerged as a rare publicly traded skilled nursing powerhouse, with steady expansion across the country and persistently solid quarterly earnings numbers.

But CEO Barry Port is hesitant to take the credit. Instead, he’s content to chalk up Ensign’s success to its legion of regional leaders, many of whom have also earned the title of CEO — nearly 80 in all.

Empowered to make sweeping strategic decisions, and given financial incentives for developing Ensign’s presence in new markets, the sprawling network of CEOs remains the core of the operator’s strength in the often turbulent post-acute and long-term care space, Port and chief investment officer Chad Keetch said.

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“Think about it as a franchise model, almost,” Port told SNN during a recent visit to Ensign’s headquarters in San Juan Capistrano, Calif. “They adapt their own best practices based on their local health care market, and they grow and expand as smaller functional units and affiliates — they’re not tied to any puppet strings here.”

Ensign’s current skilled nursing portfolio consists of 213 buildings across 13 states, including a five-SNF pickup in Texas and Arizona announced earlier this month. However, the company itself frequently notes that it doesn’t consider itself a monolith, but rather a network of individual entities each helmed by a trained administrator. The office building in San Juan Capistrano, which Ensign purchased in 2018, serves as the company’s nerve center, with staff handling back-end functions — such as reimbursement issues and payroll — for properties across the country.

Aside from that, the company’s 78 CEOs — along with other leaders — are largely on their own to develop partnerships with referral sources and vendors, focus on specialty services, and hire staff without interference from the headquarters in Southern California.

That autonomy is part of Ensign’s pitch to potential leaders, many of whom come to the company from other corporate positions outside of the health care space. Port himself was a supply chain management executive at telecom giant Sprint before joining Ensign in 2004; two years later, he became the president of Keystone Care, the company’s Texas subsidiary, which he expanded from four to 23 buildings in five years. He eventually rose to CEO of the entire company this past spring in a planned transition that saw former chief executive Christopher Christensen become executive chairman.

But becoming a regional leader isn’t easy. Because they’re often new to the industry, aspiring Ensign executives first must complete the licensure process, which can take up to a year, then work in a hands-on role as a building-level leader.

While their backgrounds are diverse — the company has recently taken on leaders from the University of Phoenix and other online education companies, as well as Microsoft and major accounting firms — they all have one thing in common when they come to Ensign.

“Our administrators come into our system, and they almost unquestionably are all taking major pay cuts,” Keetch said.

Once they prove themselves, however, the door is open for bigger opportunities. Under Ensign’s incentive plan, regional leaders stand to receive a cut of their entity’s bottom-line earnings, as well as frequent stock awards, based on clinical, compliance, and financial performance — a potentially attractive proposition for entrepreneurial administrators who are willing to bet a few years of low pay on future success.

“We’ve structured it that way intentionally to attract that very person that looks at that scenario and says: I’m willing to take that risk, and take that entrepreneurial step, because I believe in what I can do,” Keetch said.

Every regional expansion Ensign has ever undertaken, Port said, began with an administrator pitching executive leadership on a new market. Ensign is now among the largest operators in the state of Utah, but its presence there was born of an successful Arizona-based administrator with connections in the Beehive State and a belief in the company’s ability to grow there, Port said.

And based on Ensign’s track record with its person-first model, the company is unlikely to explore any further expansion the other way around — that is, identifying attractive buildings in a new market first and then installing the proper leadership.

“It’s always the leader first,” Port said. “It’s not the opportunity.”

At the heart of that philosophy is the seemingly simple conclusion that running an individual nursing home is a difficult task that requires a leader with an active mind, and the ability to manage operations as diverse as therapy and activities and culinary services. Port drew a distinction between Ensign and other skilled nursing operators by pointing out that his company intentionally doesn’t follow the traditional ladder of promoting solid building-level leaders into corporate roles — but instead incentivizes them to remain on the ground level.

“If you don’t have a well-prepared, CEO-caliber leader to run these operations, you’re really doing a disservice,” Port said.

It’s a dynamic Port has seen firsthand, given Ensign’s track record with turning around struggling properties.

“Not to speak ill of the people running these facilities — they’re just not prepared to do it,” Port said of the turnaround projects Ensign has taken on over the years. “You see the kinds of decisions that are being made. Instead of them being made by a dynamic and thoughtful, CEO-caliber leader that has a vision for that local health care market, you’re replacing that with a corporate model where decisions are being made remotely.”

Ensign has the results to back it up. On the company’s most recent earnings call back in October, Port noted that the average turnaround building sees occupancy growth of 390 basis points over the first four quarters of Ensign control, along with a 440-basis-point gain in skilled mix revenue and an 80-point rise in EBITDAR margin. Over 45 quarters, those figures are 1,300, 1,400, and 470 basis points, respectively.

Based on that trajectory, by the end of 2020, Port and the company expect to make up the earnings lost when Ensign spun out its sizable home health and senior living business lines into a separate company known as The Pennant Group (Nasdaq: PNTG) on October 1.

And Ensign doesn’t shy away from taking a few victory laps around its competitors by insisting that the skilled nursing space isn’t as hard as some operators, real estate investment trusts (REITs), and observers make it seem.

“The dynamics in our industry, while sometimes challenging, are not nearly as difficult as many are led to believe as a result of these self-imposed challenges that follow creative financial engineering,” Keetch has said on at least two Ensign earnings calls.

He expanded on those thoughts in conversation with SNN, asserting that that many of the problems that have befallen the skilled nursing industry were the result of owners that paid too much for facilities several years ago — and then saddled the operators with rent escalators that they had no chance of meeting.

“But they don’t say that,” Keetch said. “Instead, they have to point to all the difficulties of running a skilled nursing facility: ‘It’s just the industry we’re in. Sorry, it’s just the hand we’re dealt in this industry.’ Which is something we always get really frustrated with.”

At least from Ensign’s point of view, that hand doesn’t have to be so hard to play.

“Sometimes we can go into something and make a difference pretty quickly by just using solid business principles and leadership principles,” Keetch said. “It’s not rocket science. This isn’t something that’s coming out of some fancy textbook somewhere.”

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