Ensign CEO: Nursing Homes Have Decent Legal and Legislative Means To Challenge Staffing Proposal

As a “chunk” of the nursing home sector teeters on the brink, the political will of the White House and the unions to implement the federal staffing mandate appears to be at odds with its practicality, affording the industry a chance to challenge it both legislatively and legally.

This view was expressed by Ensign CEO Barry Port during a presentation at the Oppenheimer & Co.’s annual health care conference on Tuesday, where he and other Ensign executives also spoke about occupancy recovery, reimbursement rates, improving metrics on staffing and acquisition opportunities for Ensign.

As it stands, nursing homes haven’t gotten a whole lot of clarity yet on the federal minimum staffing proposal, as the Centers for Medicare & Medicaid Services (CMS) plays its cards “close to the vest,” Port said.

The industry hasn’t seen anything definitive that gives them comfort or fear, but the hope is that the thousands of comments to the agency will provide a clear indication that the rule needs to be moderated or thrown out altogether, Port said.

“It’s at the [Office of Management and Budget] OMB now and will likely be released at any time. That said, our foot is also not off the gas in terms of what we plan to do, to continue to fight it. We do think it’s a horrible precedent for the industry,” added Port. Providers would have at least two years to get into compliance with the proposal.

Last week, the U.S. House Ways and Means Committee passed a bill to prevent finalizing the rule, although such legislation probably won’t be put up for a vote in the House until the lame duck session. A companion bill in the Senate hasn’t seen further movement yet.

At the same time, industry leaders are preparing to challenge the proposal legally, he said.

If somehow the industry needs to adhere to the proposed minimum staffing rule, Port expects there will be a great deal of churn that could represent a significant opportunity for Ensign.

“There’s a great chunk of the industry that’s hanging on by its fingernails, operationally and financially. We’re certainly fortunate not to be in that kind of situation,” said Port.

Staffing rules at state level

Due to staffing shortages, many states have decided to pause imposing fines for failure to adhere to the state-mandated requirements. Illinois, Rhode Island and New York are among such states, and yet their example might not serve to derail the federal proposal, Port said.

“The challenge with this rule is it’s not really being driven by CMS. It’s being driven by the unions and the White House. CMS is effectively having to follow orders on this one,” said Port.

Even the long-awaited study on staffing levels hasn’t deterred the trajectory of the federal mandate, Port said, referring to a leaked report compiled by Abt Associates for CMS. The study indicated that no solitary staffing measure could ensure high-quality care – a stance which many leaders in the skilled nursing industry, mired with a staffing crisis, have long endorsed.

It’s an indication of conflict between what CMS thinks is enforceable and what the White House wants to do.

“It’s another indication of why we feel like there’s going to be good grounds, whether it be legislatively or legally, to have this rule changed or thrown out altogether,” said Port.

One potential major change to the proposal has to do with the absence of licensed practical nurses (LPNs) from the rule. Port expects the rule may not be finalized with position-specific requirements, giving providers a lot more flexibility on complying with a minimum staffing standard.

Strong rates, strong relationships

Ensign CFO Suzanne Snapper said the REIT is “really pleased” with where rates are at right now for reimbursement, and that they’ve seen a decent transition as FMAP dollars rolled off and states stepped up to increase Medicaid rates in the second half of 2023.

Medicare rate increases for 2023 and 2024 generated a lot of opportunity for upside; the rate reassessment process is a look back because it takes into account inflation from prior years. The next Medicare rate is expected to be at or above the 4% increase announced in July.

Managed care rates have been favorable for Ensign too, Snapper said, as a result of having strong relationships with managed care providers throughout the pandemic.

“Building those strong relationships allowed us to really step up the rates in 2023. Those relationships continue in 2024 and we’re definitely working with them in encompassing some of the increased costs and other things that have been passed through,” said Snapper.

While rate increases for managed care won’t be as good as they were in 2023, Snapper still expects to see some positive growth.

Hard-won occupancy gains

In terms of Ensign as a business, Port said he feels really good about how they ended 2023 with strong occupancy and skilled mix, give or take some seasonality changes that have occurred pre-pandemic.

“We should expect that as more of a norm going forward now that we’re out of the Covid environment,” Port said.

And there may be some upside too with occupancy as leaders in the skilled nursing space see strong demand for services.

“Even [with] the larger acquisition we took last year with North American, they’re still not to our average occupancy in the state of California. We see upside with our transitioning group and our same store group of buildings, and our newly acquired group of buildings,” said Port.

Last year, Ensign assumed operations of 17 skilled nursing communities in California, as part of a previously announced deal with Sabra health Care REIT (Nasdaq: SBRA).

Port added that the labor front continued to be challenging for the last year-and-a-half but they’re seeing staffing agency use decline consistently in the past 14 months. Meanwhile, wage inflation has moderated and net hires continue to increase and improve. Inflation hit Ensign the hardest in 2022, Snapper noted.

Ensign’s turnover metrics improved for the third year in a row as well, Port said. From a macro level, even with labor, Port sees things settling back to “normal” levels, an encouraging trend to see.