Diversicare Healthcare Services (OTC: DVCR) this week reported a financial boost from its decision to outsource therapy services, along with a significant cache of stimulus funds waiting for deployment.
The Brentwood, Tenn.-based nursing home operator in November announced a shift from its wholly-owned Diversicare Therapy Services to Reliant Rehabilitation, a move that Jay McKnight predicted would bring potentially “significant” cost savings along with better training and clinical management opportunities.
So far, the plan is working, McKnight said during Diversicare’s fourth-quarter 2020 earnings call late Thursday.
“We improved by about $1 million for the quarter as a result of this arrangement,” McKnight said of the Reliant deal. “Additionally, we received a payment for our assembled workforce of $1.8 million that we will recognize over the life of the initial contract.”
The majority of Diveriscare’s former in-house therapy team has migrated to Reliant, according to McKnight; the CEO also praised the arrangement for bringing a “broader therapy skill set” to the 61-facility chain, which primarily operates in the South and Midwest.
The fourth-quarter call wrapped up a tumultuous year for all post-acute and long-term care operators, though Diversicare had more than just coronavirus-related strains — the company kicked off 2020 by reaching an $8.5 million deal with the federal government to settle an eight-year False Claims Act investigation into its therapy practices.
The company ended 2020 with occupancy of 71.1%, down from 81.2%, with total additional health care expenses for the year of $32.3 million; the census dip led to lost revenue of $14.3 million in the fourth quarter alone, according to chief financial officer Kerry Massey, due primarily to drops in Medicaid and private-pay income.
Like many other operators, Diversicare saw a boost in skilled mix — the proportion of residents covered under Medicare, which provides the highest per-day rates for nursing home care — as a result of coronavirus-related coverage waivers. That census shift brought an additional $7.2 million in revenue, according to Massey.
With a total of $47.2 million in relief in 2020, the federal and state support was enough to offset the financial hits of reduced income and elevated costs, with the chain recognizing $19.8 million of that aid; an additional $1.5 million was invested in physical-plant improvements.
Under current guidance, the company has until June 30 to spend the remaining funds, McKnight said, though he cautioned that uncertainty about the future of government stimulus remains uncertain.
“Without an extension of the time period for utilization or additional stimulus grants, the second half of our year could be financially challenging,” McKnight said. “This is a matter that affects all in our industry and is a priority for our national and state associations. Experts predict that our industry can continue to experience the occupancy decline caused by the pandemic as long as through the end of 2022.”
For the entirety of 2020, Diversicare logged net income of $5.2 million, up from a loss of $36.1 million the year before, with facility operating income rising from $94.2 million to $110.3 million over that span.
McKnight also touted the December 2020 exit of a single facility in Florida, a non-core state for the operator, in conjunction with landlord Omega Healthcare Investors (NYSE: OHI).
“As our operations generate free cash flow, we intend to invest in our team of caregivers, invest in our physical plants where we care for our patients and residents, move forward with complementary services and improved programming in our current services, and when it makes sense, we will invest in smart acquisitions adjacent to or in our current footprint,” McKnight said.