The Ensign Group (Nasdaq: ENSG) is seeing admission volumes start to recover in the wake of vaccination clinics at its long-term care facilities, but the time it will take for occupancy to return to pre-COVID-19 levels is still an open question, the operator’s executives indicated during a virtual presentation at the brokerage and investment bank Oppenheimer’s annual health care conference.
“In terms of seeing patient flow continue to start to ramp up, we’ve definitely seen admission volumes starting to look a lot more like pre-COVID times,” Ensign chief investment officer Chad Keetch said in the fireside chat presentation. “We talked about this in the quarter, but managed care is often a kind of indicator for how frequently people are starting to use the health care system. And we’ve seen that volume in particular really start to improve month after month.”
The number of COVID-19 cases in Ensign’s facilities has fallen by 85% to 90% since January, CEO Barry Port said, citing the vaccine effort that prioritized health care workers and the residents of long-term care facilities.
But it’s still not clear how long a full recovery will take, Keetch noted, at least in terms of patient volumes. Use of the health care system is on the rise, he said — and Port observed that generally throughout the pandemic, as cases of COVID-19 fall, occupancy tends to rise, and vice versa.
Overall, Ensign’s occupancy fell from a high in February 2019 to a low in the third quarter by about 10 percentage points, compared with declines in the “high teens” in terms of percentage points for some of its competitors, Port said.
“Many of our operators have chosen to continue to admit during the pandemic, rather than taking a hunker-down approach and waiting for things to kind of pass over,” Port said. “They’ve remained an active part of their health care continuum.”
That included adding COVID-only wings to buildings, or converting to a COVID-only facility, or even adding higher-acuity patients through other service lines, he said.
During times of high COVID-19 cases in a community, skilled mix increased, and when cases were low, that case mix declined, he noted. The waiver of a requirement that Medicare only cover skilled nursing care after a three-day hospital stay helped drive Medicare census at Ensign, and as cases rose in the winter, the company saw a Medicare census spike in December 2020.
Ensign’s use of the three-day stay waiver “tails off pretty dramatically,” however, when cases fall, Port noted.
M&A on the horizon
In terms of deal flow, COVID-19 “put the brakes on all our acquisition efforts,” Keetch said, but over the summer and fall, the company started to evaluate acquisition deals again. Ensign has some other deals expected to be announced in the next several months, he added.
“We definitely are seeing deal flow pick up,” he said. “I think we’re probably on the front of the curve though, on what we think is coming, which is a lot of opportunities that will probably be enhanced by the fact that in the pandemic, occupancies are down.”
The operator is seeing deals from a variety of sources as a result, whether it’s from mom-and-pop operators or regional chains and larger companies, he said. One factor in the flow of transactions is the aid from the federal government; SNFs received billions in aid under the CARES Act, and for many, it was a lifeline that helped them stay open.
It was aid that Ensign, for its part, refused in the second, third, and fourth quarters of 2020, citing record quarters and the reality that its revenues come from primarily government sources.
That aid also may have “delayed some of the reality” when it comes to buying and selling, Keetch said.
“We’re hearing a lot from our REIT [real estate investment trust] partners that they’re starting to see that a lot of their tenants, but for CARES Act, maybe can’t pay their rent or cover their rent,” he said. “So we’re starting to get some of those opportunities that are coming to us.”
Ensign has not been immune to the staffing strains of the SNF sector, which were intense even before a global pandemic that uniquely effects the elderly and those in close quarters.
One of the ways it tried to combat that involved pooling resources to reward frontline workers.
“In 2020, leaders from across the organization pulled together portions of their incentive payments, and created a fund for frontline employees that end up being around $20 million,” Port said during the presentation. “That distributed down to the facility level, and the leaders of those facilities took a portion of that pool and they distributed them to employees at the frontline level that were doing amazing things at the frontline level.”
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