Nursing home industry stakeholders should try to shape the proposed federal minimum staffing policy to best fit with what providers can handle rather than railing against the rule completely.
At least that’s what leaders of the Ensign Group (Nasdaq: ENSG) plan to do, CEO Barry Port said during the company’s third quarter earnings call on Thursday.
Efforts to strike down the proposal altogether would be a “futile effort,” he said, and not worth the energy, given the strength of White House and union-driven interest. There’s “far too much” support for the staffing rule, added Port.
“The ultimate goal here isn’t necessarily to fight it, although you see some legislation that’s been proposed,” said Port. “Given the continuing resolution around the budget, there is a window and potentially an opportunity to have that legislation somehow make its way into a voting situation – but that’s an outside chance.”
He refers to a Congressional bill that aims to defeat the Biden administration’s staffing proposal.
“Our goal, our focus is to shape it and make it something that we can all live with and make some sense of, and then potentially set that up for a legal challenge down the road,” said Port.
Advocacy continues through comments to the Centers for Medicare & Medicaid Services (CMS) at over 11,000 now, with the Nov. 6 deadline fast approaching. Port said the agency is getting feedback from lawmakers too, referring to a letter signed by nearly 100 members of the U.S. House of Representatives, listing concerns with the proposed rule.
As it stands right now, Ensign CFO Suzanne Snapper said the minimum staffing proposal wouldn’t affect Ensign properties for the next couple years.
Ensign posted strong financial results for the third quarter and raised its guidance. Shares in the company were up slightly (0.33%) to end regular trading on Thursday.
Growth opportunities and tighter financial markets
The company added to its growing portfolio during and after Q3, with six new operations and four real estate assets, Ensign Chief Investment Officer Chad Keetch said during the call.
Two of the operations are in South Carolina, one is in Kansas, one in Colorado and two are in Washington, he said, adding 621 new operational beds to the roster.
Ensign now has 296 health care operations, 26 of which also include senior living operations, across 13 states. Overall strategy includes both leasing and acquiring real estate. The company’s captive real estate investment trust, Standard Bearer comprises 107 properties, leased to 78 affiliated skilled nursing operators and 30 leased to third party operators.
“We’re excited to continue to grow in some of our most mature states, including Colorado and Washington, and to add an operation in Kansas that was formerly operated by a hospital,” said Keetch. “We’re also thrilled to close on a transaction where Standard Bearer was able to acquire the real estate in Washington and lease a portion of the portfolio to a third party tenant.”
Ensign is anxious to further utilize this strategy that executed in Washington, Keetch noted, with more deals likely to follow this approach.
Keetch expects even more growth in 2024 as the company continues to see a steady pipeline of opportunities and is starting to notice effects of higher interest rates on pricing. First priority is growth in states Ensign already operates in, with potentially a few new states that are “close by,” said Keetch; it’s a lot of work to go into a new state but something still on the horizon for Ensign.
“There are more real estate opportunities coming to market at reasonable prices due to tighter financial markets. We continue to see evidence that many operators are struggling and as a result, we still expect there will be lots of opportunities that will arise,” said Keetch.
For Q3 2023, Ensign’s GAAP net income was $63.9 million and adjusted net income was $69 million for the quarter, increases of 13.7% and 16.6% respectively compared to Q3 2022. Revenues for the quarter were $940.8 million, a 22.2% increase under the same comparison.
Skilled services revenue made up the majority of revenue at $903 million, an increase of 22.1% compared to Q3 2022, Ensign reported. Managed care revenue and census increased 13.8% and 6.6% respectively when compared to Q3 2022.
“We continue to build stronger relationships with our managed care partners due to better coordination of care, increased capabilities and strong clinical outcomes,” Port said.
Standard Bearer had an increase in revenue as well, by 12% compared to Q3 2022, to land at $21 million in September.
In terms of occupancy, Port said Ensign properties are on the right track to exceed pre-pandemic occupancy of 80.1% as the company expects to see higher admission during the fall and winter months.
Same store occupancy increased by 290 basis points compared to Q3 2022.
‘People systems’ key to success under minimum staffing rule
On the operations side, Port said Ensign continues to get input from regional leaders on how best to staff buildings as the staffing proposal approaches, with removing agency as part of their turnaround process for newly acquired properties.
A continued investment in local talent will help Ensign if staffing needs to be adjusted with the proposal.
“If and when there is adjustment to how the federal government decides we should staff on a building by building basis, if our people systems aren’t where they ought to be, then that becomes more challenging,” said Port.
Efforts operationally are around making sure Ensign continues to be the “absolute best employer” it can be, noted Port.The noise around the proposed minimum staffing rule may have a silver lining of sorts – it gives Ensign an opportunity to show how great of an employer the company can be when the competition for clinicians gets fierce.
Ensign COO Spencer Burton gave two examples of “people systems” at work, starting with Summerfield Healthcare Center in Santa Rosa, Calif. Leaders at the facility increased occupancy by 7.5% and skilled days by 52.3% compared to Q3 2022, resulting in a 40% improvement in total net revenue and soaring EBIT by 126%, Burton said.
The leaders at Summerfield also helped newly acquired North American properties get agency free and adjust to Ensign company culture, he said.
Redmond Care and Rehabilitation Center in Washington was able to recruit and develop some of the top clinical talent in the greater Seattle area despite intense staffing shortages – a focus on infection prevention and prioritizing employee wellbeing were seen as ways leaders achieved recruiting success, added Burton.
The five-star SNF has some of the lowest hospitalization rates in the state and turnover far below the state average.
“[Redmond isn’t] incurring expensive recruiting and onboarding costs, nor wasting money on high priced agency staffing. Instead, the facility continues to invest in rewarding their own staff, and increasing clinical competency,” said Burton.
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