Economic, Staffing Headwinds Continue to Trouble Nursing Homes, But Operators Like Ensign Remain ‘Steady’

As the year so far has brought rising inflation, the looming possibility of a recession and uncertainties around staffing stability and post-Covid demand, there are still operators — like Ensign Group (Nasdaq: ENSG) — that have continued on a path toward growth.

In a note previewing 2Q earnings for the health care services industry, Stifel analysts highlighted ongoing struggles for nursing home operators, paying particular attention to the potential impact of the proposed Medicare cuts, and found that such an environment would likely bring additional distressed opportunities to market.

Ensign and its captive real estate company Standard Bearer added five skilled nursing facilities and one campus to its operations earlier this month, as well as five real estate assets to the portfolio.


These transactions bring the total number of acquisitions in 2022 to 21, the company’s fastest pace since 2016, according to a separate note published by Stifel.

As the market continues to change, Stifel analysts suggested that operator external growth will take “center stage” — investors may shift to focus toward the “investment pipeline” and “improved external growth prospects.”

Generally speaking, while hiring has started to see some growth in the health care sector, low unemployment has brought upon fierce competition for both skilled and non-skilled workers.


Employers in the sector saw an estimated 56,700 more jobs in the month of June.

Nursing care facilities specifically added 5,400 workers last month, according to Bureau of Labor Statistics (BLS) data, but the industry still employs more than 200,000 fewer workers compared to pre-Covid staffing levels.

“Relatively high asset prices have been an impediment to acquisitions for many. The phase-out of government support and the prospect of reimbursement adjustment such as [the] proposed PDPM cut for SNFs and PDGM cut for [home health agencies] HHAs are likely to push more deals to the market,” analysts wrote. “As capital availability and cost deteriorate, we expect transaction prices to be more buyer friendly to those in strong capital positions.”

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