PACS CEO: In Tough Landscape for Nursing Homes, Empowering Local Leaders, Serving Higher Acuity, Avoiding ‘Wrong Capital’ Is Crucial

Scaling up by empowering regional operators has long been a successful strategy for nursing home giant PACS Group (NYSE: PACS), but this growth hasn’t come at the expense of losing its identity nor by over-leveraging itself using high-interest debt, according to CEO Jason Murray.

For PACS, which debuted on Wall Street in April, its steady expansion also guided its decision to go public.

“As we grew in size, we were getting to a point where we were talking about what the future looked like – how do we preserve what we built?” Murray said.


Over the years, PACS executives understood that it was important not to get drawn into using the “wrong capital” – meaning loans that over-leverage a company and place limits on good decision-making. As PACS became too big for specialty lenders, it became imperative for the Utah-based provider to seek other means of capital to support its growth.

And so, a greater access to institutional capital and the ability to offer its employees a stake in the company eventually led the PACS team to launch an initial public offering (IPO), Murray said.

Murray, who co-founded PACS with Executive Vice Chairman Mark Hancock, has two decades of experience working in the acute and post-acute space and is a licensed nursing home administrator.


PACS Group’s footprint extends over 218 post-acute facilities across nine states.

In its first earnings release since its shares began trading, PACS beat earnings estimates for the first quarter, and projected a strong year ahead.

Murray, who recently sat down with Skilled Nursing News for a wide-ranging interview, discussed his company’s journey to becoming publicly traded, how it is different from competitors like Ensign Group (Nasdaq: ENSG), and its model’s focus on local needs and serving a higher acuity resident.

“That decentralized model for us is critical, because healthcare is local, and we need to keep it local. The only way we keep it local is by allowing our local leaders to make decisions and letting them adjust their business models based on the nuances of their individual markets,” Murray said.

Murray also talked about the unintended consequences of the federal minimum staffing rule, and how PACS is poised to meet the challenges.

The following conversation has been edited for length and clarity.

SNN: Talk a little bit more about PACS’ path to becoming a public company.

Murray: It was an interesting path for us, because I don’t think we ever set out with this idea that we were going to become a public company. It just kind of happened with time, as we grew in size, we were getting to a point where we were talking about what the future looked like – how do we preserve what we built?

That really was kind of the driving question right now. The more we reflected on that and talked about it together, the more we felt like there was a potential opportunity for the perpetuation of what we’ve built. This idea was that we’re perpetuating something special, something that we had built, something that maintains our identity.

There was the ability to have access to institutional capital too that we didn’t really have up to that point. We’ve outgrown the specialty lenders in our space because of our size. This idea of being able to access institutional capital was really the driving decision point. Third was to create a currency for employees, meaning we wanted to get to a point where we could offer stock options as a form of currency.

It allows us to make sure that we’re all rowing in the same direction to make sure we’re performing well, so that was kind of the main driving force behind why we made that decision. But like I said, it was never in the cards early on – we wanted to continue to just expand what we were doing and grow to whatever size we needed to.

Anything you want to add about lending in the skilled nursing industry?

Lending is challenging in our sector, it’s such a nuanced sector. For capital partners to get comfortable with the collateral in order to perfect their loans. It’s just, it’s very challenging to do. Then there are some great [lending] companies that I think do a good job working in this space.

Providers can only really grow up to a certain size, because of that nuance, and the inability to perfect the loans. Do I see that changing with time, I don’t know. That is one of the main questions [providers are] going to have to tackle and work through is, how do I do this in a responsible manner where I’m not taking on the wrong capital. That was a major decision point for us as we grew, and as we’ve scaled over the years, we’ve been very sensitive and careful not to take on what we call the wrong capital.

What would you consider to be the “wrong capital”?

Capital that isn’t aligned with what we’re trying to accomplish as an organization. We’ve learned through a sad history in our sector, that there are those providers who have done that, who have taken on what I’ll call the wrong capital, and they become over-levered, and then that [lender] becomes their taskmaster. They are the ones who are beholden to these interest rates and terms that are burdensome, and it becomes what drives their business as opposed to being able to make decisions based off of the needs of the patients and their employees.

I don’t necessarily see it changing, unfortunately. But you know, there are those lenders out there that work in our space who I think do a good job at helping meet the needs of midsize operators.

Any lessons from Ensign, or other companies in the industry that have gone public and grown?

Ensign has done a great job over the years. We’ve competed with them in different markets, but we’re also friendly competitors. We’ve been very appreciative of the great work they’ve done in the public markets over the years. They’ve been able to introduce this decentralized model to our sector, which has been important.

We’ve taken elements of that and we’ve tried to further develop it into something that’s unique for our organization. I think the areas where we may potentially be different from Ensign is that we’re a younger company. That’s seen in our ability to assimilate our facilities on common clinical platforms and IT platforms as well.

On the leadership side, that’s really what I would say is the biggest differentiating factor between the two of us. They have some great leaders that work for their organization. They’ve done a great job, but we feel like we’ve really taken that to a new level within our sector, where we’ve worked hard to attract what we feel is the best talent that not only our industry has, but also really any industry. Thet decentralized model for us is critical, because healthcare is local, and we need to keep it local. The only way we keep it local is by allowing our local leaders to make decisions and letting them adjust their business models based on the nuances of their individual markets.

Thinking ahead to implementation of the staffing mandate, any unintended consequences that haven’t really been discussed?

We are in favor and will continue to support efforts to get it repealed or further refined to be more palatable. We’ll invest in those efforts, like we have up to this point, with lobbying and on the national and state association side, as well as with our own efforts. As an organization, we feel like we’re actually well positioned for this. We’ve been studying it since it came out. And we’ve been running analyses that have provided us modeling, to give us an idea of what the financial impact would be. We feel very good as an organization that we’re in a good position to absorb this mandate, should it pass the way it is, and we’re preparing as though it will pass the way that it’s written.

Our model is a higher acuity model. Because of our higher acuity model, we naturally staff our facilities higher. That puts us in a better position to absorb this mandate. It’s something that we’re considering as we look at future targets, what the staffing rates look like in those facilities.

How might that readiness change per state, or region?

As we deploy our model, and as we bring in new leadership into that facility, we start to see the needle move. And as we perform well clinically, we start to see the needle move. And as the needle moves from an occupancy standpoint, then the acuity mix changes. As that all moves, we are increasing the staffing within the facility.

We operate in states that already have staffing mandates, like in the state of California, we’re the largest provider in the state of California, we’ve been operating there for 10-plus years. We know what it’s like to operate in that environment. That also positions us for success as we think about the mandate.

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