Ensign On Track to Overtake Genesis As Largest Nursing Home Operator

The Ensign Group (Nasdaq: ENSG) is poised to overtake Genesis HealthCare as the largest nursing home operator in the country as it continues to build upon its rapidly growing portfolio, according to ownership data released last week by the Centers for Medicare & Medicaid Services (CMS).

Ensign could be the largest skilled nursing provider in just a matter of months — if they haven’t already done so, Stifel analysts commented in a note published late Sunday.

Ensign announced a series of SNF acquisitions and long-term leases on Monday, including one facility in Arizona, two in South Carolina and six in Texas. The deals bring Ensign’s growing portfolio to 268 health care operations across 13 states.

“Those nine assets probably pushed them to the top,” Stifel analyst Tao Qiu told Skilled Nursing News. “South Carolina is a relatively small market for them. They’re expanding over time with a capable core leadership team; they’re scaling that market … to further grow the whole enterprise.”

Analysts also pointed to the operator’s successful growth model and long runway ahead – Ensign has plenty of room to densify in Texas and California, while expanding its footprint in Wisconsin and Kansas.

The San Juan Capistrano, Calif. operator could enter other viable markets too as they further expand, partnering with smaller operators looking to scale. Stifel analysts said “abundant small tuck-in acquisitions” are more in line with Ensign’s small market business model, compared to digesting larger portfolio deals.

In addition to Ensign and Genesis, the largest SNF providers by facility include Life Care Centers of America, HCR ManorCare (ProMedica Senior Care), Providence Group and Consulate Health Care, according to Stifel’s analysis of the CMS data as of Sept. 26.

Ensign not alone in market model push

Ensign CEO Barry Port said in a statement that recent acquisitions add to a mature market with good leadership in Arizona and Texas, while the company has “carefully reviewed opportunities” in and around South Carolina to add to existing operations.

Port did not immediately return a request for comment, nor did a Genesis spokesperson.

The October purchases add to a “busy summer of growth,” while showing a commitment to growing operations and its real estate portfolio, Port said back in August. Ensign purchased six facilities in Texas between July and August.

Ensign subsidiary Standard Bearer REIT now owns 107 real estate assets.

Its decentralized model feels very much like a franchise model, Qiu said, with Ensign putting their weight behind teams at the local level.

“The whole entity is doing well because the interests are all aligned,” he told SNN. “They standardize the way the business is run in terms of how we measure performance, how we align incentives, how we make sure that each facility in the same cluster can help each other out and really leverage on that scale.”

From the opposite side of the transaction, Qiu also sees Standard Bearer REIT and Ensign as a way for smaller operators to partner up on the capital side and back office end.

“I think they can leverage their service centers, their support in terms of IT infrastructure to help these guys really scale up. I feel like that’s another partnership opportunity for Ensign, outside of taking over operations themselves,” added Qiu.

The regional and local market model has been embraced by other operators as well, with the top 50 largest providers on average operating in six states. Of those 50 providers, many tend to focus on one or two states in terms of local density, according to Stifel’s analysis of the CMS data.

Indiana-based American Senior Communities and Texas-based Creative Solutions in Health Care were among those that have high density in a particular state.

A fragmented industry

Stifel made other findings from the federal agency’s ownership data – perhaps one that has been highlighted anecdotally — that the industry is highly fragmented.

The breakdown is where things get interesting: one-third of SNFs are single-site operations, Stifel analysts found; of the remaining 606 multi-facility providers, 53% have less than 10 facilities and 28 have 50 or more buildings.

Market leadership looks different in each state, Stifel analysts said, with the exception of the following five states: Oregon, West Virginia, Idaho, New Mexico and Utah. In these states, the top 10 operators make up more than 70% of the market.

About half of these five states don’t require operators to obtain a certificate of need (CON), the analysts found.

“My guess is that those are more competitive markets. Having larger scale helps you in those markets,” added Qiu.

While the industry remains highly fragmented, high concentration in some states also backs the “consolidation thesis,” said Qiu, in select markets.

“You can be successful as a national player just by focusing on your existing markets,” he added. “You don’t need to branch out into other states. By increasing that density, embracing that cluster model, which Ensign is very good at, it really worked in those markets.”

The CMS ownership data, coupled with other data released on quality ratings can help stakeholders “connect the dots” and aggregate some kind of quality measures for operators, he told SNN.

But ultimately, according to Qiu, the skilled nursing business is “very much locally driven” and density can be a differentiator.