Diversicare Inks Deal to Outsource All Therapy to Reliant Rehab, Expects Cost Savings

Nursing home operator Diversicare Healthcare Services (OTCQX: DVCR) this week announced a deal to shift all of its therapy services to a third-party provider, Reliant Rehabilitation.

The Brentwood, Tenn.-based chain had previously offered rehab care under Diversicare Therapy Services, a wholly owned subsidiary.

“We believe that this transition will equip us to continue to be a care innovator and ensure that we can provide the best quality of care to our patients and residents,” Diversicare CEO Jay McKnight said in his company’s third-quarter 2020 earnings update, released Thursday. “We also expect cost savings from efficiencies gained by this new relationship.”

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McKnight further described the opportunity for savings as potentially “significant” — depending on the roll-out of the partnership — on the company’s third-quarter earnings call Thursday afternoon.

Diversicare Therapy Services’ employees will migrate to Reliant during an ongoing transition period, the two companies indicated in a joint release announcing the deal, which was effective as of November 1.

“A partnership with Reliant will give our patients and residents access to cutting edge therapy while giving our therapy team members access to best in class training, clinical management, and career opportunities,” McKnight said in the statement.

The Plano, Texas-based Reliant provides therapy services to more than 800 skilled nursing facilities across 40 states. Diversicare operates 62 properties with a total of 7,329 skilled nursing beds.

“This partnership aligns the respective expertise and core strengths of both providers to better address the many demands and expectations of patients/residents, family members, referral sources and payers in what is shaping up to be the post-pandemic new normal,” Reliant CEO Chris Bird said in the joint statement.

Diversicare reported net income of $3.2 million for the third quarter of the year, an improvement over a $1.9 million loss over the same span in 2019. While the operator pulled down $42.3 million in federal coronavirus relief, on top of state-level Medicaid boosts, Diversicare logged an expense increase of $12.7 million related to COVID-19.

The company has also only recognized $14.7 million of that federal aid as “other operating income,” classifying $27.2 million as deferred income as of the end of the third quarter.

“We anticipate that we will incur significant expense and lost revenue in the fourth quarter and beyond related to fighting this disease,” the company noted.

The operator experienced the census drops that have hit the rest of the industry: Occupancy at Diversicare facilities sat at 66.7% during the most recent quarter, down sharply from 77.6% over the year-ago period. Higher-dollar Medicare census, however, ticked up to 11.7% from 8.9% in the third quarter of 2019.

Diversicare has seen COVID-19 cases at all of its 62 buildings at some point during the pandemic, though about half of the facilities are now COVID-free, according to McKnight.

“Since the end of the quarter, there have been additional cases of COVID-19 at certain of our centers,” Diversicare observed. “The company has continued to experience reduced occupancy and increased operating expenses at its centers in the form of increased wages and increased cost for personal protective equipment, food, and certain other supplies.”

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