Nursing home operator PACS Group (NYSE: PACS) delayed the release of its third-quarter earnings, providing only preliminary results on Wednesday as it carries out an internal audit and cooperates with a federal investigation into its referral and reimbursement practices.

Originally scheduled for Nov. 7 after market close, PACS now expects to disclose its financial results “as soon as practicable.”

The announcement comes on the heels of a volatile week for PACS shares amid allegations of fraud made by Hindenburg Research, an entity which targets publicly-traded companies using public records, internal documents, and employee interviews. It shares the findings with limited partners, who take a short position before the report is released, profiting if the company’s stock price falls.

PACS Group shares fell $12.36, or 41.84%, to $17.18 midday on Wednesday, extending earlier losses in the aftermath of Hindenburg’s report, which claims that the company is “systematically scamming taxpayers.”

On Friday, PACS stock had closed at a record high of $42.94, more than double its IPO price of $21.

PACS executives pushed back against Hindenburg’s allegations.

“We believe recent third-party allegations are misleading,” said CEO Jason Murray, adding that PACS’ audit committee, with assistance from external counsel, is conducting an investigation of the allegations. Additionally, Murray revealed his company had received requests by the federal government, and is fully cooperating with government authorities.

Murray stressed confidence in PACS’ systems and controls, emphasizing the company’s commitment to high standards of compliance and transparency.

“PACS Group operates in a highly regulated industry where compliance is of the utmost importance,” Murray said. “While we believe the recent allegations are misleading, we are taking them seriously and are conducting a thorough review with the help of external counsel.”

Alongside the announcement of the delay, PACS provided preliminary operating metrics for Q3 2024.

The company reported strong performance, with 76% of its skilled nursing facilities achieving a 4- or 5-star CMS quality rating. Total facility occupancy stood at 90.5%, significantly higher than the industry average of 77%. PACS also expanded its footprint, acquiring 56 new facilities across six states, adding 2,889 skilled nursing beds and 1,334 assisted living units.

With more than $600 million in cash and available liquidity, the company remains well-capitalized and poised for continued growth, the press release noted.

Stephens Inc. Analyst Scott Fidel said in a research note that relative to the preliminary key performance indicators, total occupancy for the quarter stood slightly above the forecasted 90.3% and was consistent with the expected quarter-over-quarter decline of 50 basis points, This result reflects the integration of 35 skilled nursing facilities (SNFs) out of a total of 56 acquired during the quarter, he said.

PACS operates over 284 facilities across 16 states, serving more than 27,000 patients daily.

The Hindenburg allegations

The allegations against PACS include an overuse of the 3-day hospital stay waiver required to allow use of Medicare for skilled stays during the COVID-19 pandemic.

Noting that SNFs typically generate up to three times more revenue per patient from Medicare than Medicaid, PACS and others misused the 3-day hospital waiver to allow patients to qualify for Medicare funds for skilled care for patients with COVID exposure, the Hindenburg report claims. Federal authorities have clarified that exposure to COVID alone didn’t warrant a waiver from the hospital stay, yet some SNFs still claimed Medicare coverage using it, tripling their revenue per patient.

The Hindenburg report alleges that this controversial scheme accounted for more than 100% of PACS’ operating and net income from 2020 to 2023, creating the appearance of legitimate growth ahead of its 2024 IPO.

When the COVID waiver was implemented, 26 of PACS’ longest-owned facilities, which had seen stagnant Medicare revenue from 2017 through 2019, reported a 190% increase in skilled care revenue, which rose to $151.5 million in 2022 from $52.2 million in 2019, claims the Hindenburg report.

PACS’ primary competitor, the Ensign Group (Nasdaq: ENSG), grew Medicare revenue by just 23% during the same period, indicating this was not an industry-wide trend, the report notes. In 2022 alone, PACS booked 188% more Medicare skilled care revenue than Ensign on a per bed basis, according to facility financial reports, Hindenburg’s research shows.

“Our 5-month investigation, including interviews with 18 former employees, competitors, and an analysis of 900 plus detailed facility-level cost reports, revealed that PACS’ ‘turnaround’ strategy largely boils down to systematically scamming taxpayer-funded healthcare programs,” the report states.

Skilled Nursing News reached PACS for further comment, but hadn’t received a response by the time of publication.

NHI executives on recent partnership with PACS

Skilled nursing providers such as Integra Health and Welltower were at the center of previous Hindenburg investigations following a joint venture between the two. The Hindenburg report called into question Integra’s ability to handle a large portfolio, noting Integra’s new status as a company and the fact that it was led by a 29-year-old CEO at the time. Shares of Welltower suffered sharp declines following the Hindenburg report in 2022.

Meanwhile, executives for National Health Investors (NYSE: NHI), a Tennessee-based real estate investment trust with recent partnerships with PACS, said they haven’t seen any large revenue shifts.

“We haven’t seen anything that would cause concern to date, but we’ll definitely be monitoring it closely,” said Kevin Pascoe, chief investment officer at NHI, during the company’s quarterly conference call.

PACS is a smaller customer for NHI, contributing to less than 3% of its revenue, with half of that coming from assisted living, Pascoe said.

“We don’t have a full suite of financials from [PACS], but even through our underwriting, we weren’t seeing any massive revenue changes or big changes to the existing business as related to our communities. So currently we see those as stable,” Pascoe said.