Nursing home operators may see a long phase-in for a federal minimum staffing requirement, and a host of exceptions, when more details finally come – but, it’s difficult to speculate on hypotheticals and may not help operators to dwell on the “what-ifs.”
That’s according to Ensign Group (Nasdaq: ENSG) CEO Barry Port, who weighed in on the yet to be announced minimum staffing mandate from the Centers for Medicare & Medicaid Services (CMS) during the company’s Q1 2023 earnings call on Thursday.
“We’ve historically been pretty good at adapting when things come out. It’s not that we’re doing nothing, I just think worrying about what we don’t know yet isn’t always the most productive use of our time,” said Port. “Long story short, we’re watching it closely.”
In terms of the minimum staffing requirement’s potential effect on dealmaking, Ensign Chief Investment Officer Chad Keetch said staffing challenges are always expected to have a “short-term drag” on earnings. It’s “part of the deal,” he said during the call.
Ensign’s executive team touched on other major concerns for SNF providers this year – the end of the public health emergency (PHE), Medicaid rebasing and agency use among them.
Following its 17-facility acquisition in California, Ensign has been working to cut agency use and attract lasting clinical talent as part of its transition process as well.
Port said there’s “a lot of wood to chop,” referring to high staffing agency use in the California buildings.
“This is a challenge that we’ll deal with throughout the year. It won’t go away quickly,” said Port. “It’s reflective of the overall environment. We have a lot of opportunities in the state of California to improve. And the good news is, we’re on a path of steady improvement.”
Ensign has taken strategic efforts to certify nursing assistants and get them working in its facilities, he said, but admitted there isn’t a simple answer to the labor crisis.
Strong first quarter and smooth sailing ahead
Suzanne Snapper, CFO for Ensign, said during the call that the majority of the states the group operates in have either increased the base Medicaid rate or plan to continue with enhanced Medicaid funding through the end of the year, ensuring a “relatively smooth transition” from pandemic-related government financial support for the sector.
So smooth that the group provided updated annual earnings guidance during the call, an increase from $4.64 per diluted share to $4.77 per diluted share, with annual revenue guidance increasing from $3.68 billion to $3.73 billion.
“Positive momentum we’ve seen with occupancy and strong skilled mix, as well as some additional strength in Medicaid and managed care programs, has led to the increase in our guidance,” said Snapper.
Port said Texas is a bit more nuanced, with a gap expected between its stepping down of FMAP funding and potential Medicaid rebasing to take effect in September; the Texas legislative session, which occurs every two years, is still ongoing.
“It won’t be a stark drop off but there will be a gap there where we won’t have the continued revenues coming in to offset all of the expenses,” said Port. “There will be a combination of cost control, this conservative accounting method we’ve been leaning on.”
Other factors that could impact future quarterly performance included variations in reimbursement systems, delays or changes in state budget, the influence of the general economy, staffing and, on more of a short-term basis, acquisition activities, Snapper said.
Ensign’s locally driven strategy continues to bear fruit with occupancy improvements for the ninth consecutive quarter, Port said. Skilled revenue and census also improved as a result of localized leadership – skilled mix revenue for same store operations grew by 5.4%, while skilled mix days increased by 3.5%.
Occupancy for same-store and transitioning operations increased by 4.2% and 5.4% respectively, with same-store occupancy reaching 78.8%, Port said. The group is inching toward its pre-pandemic occupancy average level of 80.1%.
“Although we still have headwinds from these labor market challenges, our turnover is improving significantly year over year, and our utilization of agency labor is trending down for the fourth month in a row,” Port said. “We also continue to build stronger relationships with our managed care partners due to better coordination of care, increased clinical capabilities and strong clinical outcome.”
Consistent with national trends of managed care penetration into the nursing home industry, Port said Ensign’s volume of managed care centers and managed care revenue increased during the quarter by 9% and 11.9% respectively.
Total skilled services revenue for the quarter was $850.9 million, a 23.9% increase compared to Q1 2022. GAAP diluted earnings per share was $1.05, an 18% increase compared to Q1 2022.
Consolidated GAAP revenues and adjusted revenues for Q1 2023 was $886.8 million, a 24.3% increase over Q1 2022.
Transitioning properties and new opportunities
When discussing the 17 acquired properties from North American Healthcare, Port said the additions contributed strong clinical leaders to the Ensign team. He also noted that, similar to most of the group’s recent deals, challenges were expected related to higher than normal agency staffing.
Two SNFs in Colorado were also added during the quarter, said Keetch, with 302 operational beds. The California properties add 1,462 beds to Ensign’s portfolio.
“While we have literally been presented with several hundred opportunities over the last 12 to 18 months, we remain patient,” said Keetch. “We’re careful to stick to our fundamental growth principles, and are pleased to see most of these operations are already contributing to the bottom line.”
The California and Colorado additions bring Ensign’s growing portfolio to 290 health care operations. The group continues to provide additional disclosure on its real estate investment trust (REIT) Standard Bearer, comprised of 103 properties owned by Ensign and leased to 75 affiliated skilled nursing and senior living operators, while 29 operations are leased to the Pennant Group (Nasdaq: PNTG).
Standard Bearer generated rental revenue of $19.7 million for the quarter, and $13.2 million in funds from operations (FFO), a 14.7% and 10.6% increase respectively compared to Q1 2022.
Ensign looks to grow in its most mature markets in future, including Arizona, Washington, Texas and Colorado, with an eye on opportunities that would give the group exposure to new markets, noted Keetch. New states aren’t off the table either, with acquisitions in South Carolina opening the door to other southeastern states.
“With the success that we continue to enjoy in South Carolina, we hope that we will be able to continue to build the Ensign footprint in nearby southern states,” he added.
Other business ventures are gaining momentum, he added. An entrepreneurial incubator program has helped the group attract and retain industry leaders to go out and explore new post-acute care business opportunities for Ensign.
“While currently these new ventures collectively represent a very small percentage of our overall business, we’ve shown in the past with our home health and hospice business these opportunities have the potential to become significant,” said Port.
Transitional turnarounds
During the call, Ensign COO Spencer Burton shared some facility-specific operational gains in the last quarter, including North Mountain Medical in Phoenix, Ariz. The facility maintains five-star status through the Five-Star Quality Ratings System despite 100% of its residents needing complex respiratory care.
The facility has an in-house wound care team as well that allows patients to stay in the SNF rather than a more expensive long-term care hospital (LTCH).
Increasing respiratory and wound care needs have been fueling the rise in acuity across the nursing home sector, Skilled Nursing News recently reported.
At the same time, maintaining high star ratings while also delivering care to more complex patients is often a daunting challenge, SNN reported in a separate article.
Occupancy at the Arizona SNF went from 81% to an “incredible” 96% while increasing skilled revenue mix to more than 94%, Burton said.
Companies featured in this article:
Ensign Group, North American Healthcare, Standard Bearer Healthcare REIT, The Pennant Group
