Ensign CEO: Federal minimums are ‘not the way to promote quality’

As the skilled care industry faces unprecedented workforce challenges, The Ensign Group (Nasdaq: ENSG) increased its workforce by 3% — an achievement achieved thanks to local hiring and retention efforts, supported by the company’s regional market strategy.

Ensign’s reliance on agencies has also decreased — a trend CEO Barry Port expects to continue.

“Just as Covid required our facilities to improve their infection control and clinical systems early in the pandemic, staffing shortages have pushed our facilities to innovate and improve their systems for recruiting and retaining staff,” Port said in the first quarter 2022 of the company earnings call.

The San Juan Capistrano, Calif.-based post-acute healthcare provider and investor also addressed some key industry announcements, namely industry reforms proposed by the Biden administration and a 4.6 percent recalibration of the patient-centric payment model (PDPM).

Port said he’s not concerned about the federal initiative to establish a minimum staffing ratio next spring, as Ensign’s facilities are already operating at an increased staffing ratio to accommodate higher acuteness patients.

“A federal service mandate must consider all types of providers, and the vast majority have less sharpness than what we typically see. We try not to focus too much on the what-if questions, especially when there’s very little detail on that, but we feel okay,” Port said during the call. “It’s certainly not a model that we necessarily agree with. In our opinion, this is not the right way to drive quality.”

Suzanne Snapper, Ensign’s CFO, said the company reiterated its 2022 annual earnings guidance of $4.01 to $4.13 per diluted share despite the PDPM announcement, factoring in the “larger than normal” payment rate increase of 3, 9% as part of the SNSF Final Rule.

“The net interest rate in the final rule could be either negative 0.7% or less, or even a positive net change, depending on the timing and amount of the final adjustment,” Snapper said.

Snapper said there’s also a possibility that the Centers for Medicare & Medicaid Services (CMS) will recalibrate PDPM over a two to three-year period, while CMS Administrator Chiquita Brooks-LaSure told SNN that’s unlikely.

Brooks-LaSure said the agency’s hands are effectively tied given the legal obligation to make the model budget neutral.

In terms of M&A growth, Stifel says Ensign is able to continue to consolidate “weaker competitors” and maintain the current positive momentum — all without the use of CARES Act funds.

“The company’s consistent performance is in stark contrast to many other healthcare providers that have struggled under the recent labor shortages, illustrating the benefits of the localized strategy and the quality of management,” Stifel analysts wrote in a statement on Friday.

Ensign has added nine properties/businesses to its newly formed captive Real Estate Investment Trust (REIT) Standard Bearer since the beginning of the year. Ensign has increased its SNF assets from 58 when it went public in 2007 to 251 today.

With 215 buildings, the assets are predominantly in the area of ​​qualified care, followed by 25 hospital campuses and 11 senior living facilities.

According to Seeking Alpha and Stifel, Ensign beat analysts’ “highest” expectations by two cents. Diluted GAAP earnings per share (EPS) for the first quarter were 89 cents, up 3.5% from the first quarter of 2021, Ensign said in its result report.

Consolidated GAAP revenue and adjusted revenue for the quarter were $713.4 million, an increase of 13.5% compared to the first quarter of 2021.

Qualified Nursing revenue was $686.8 million, an increase of more than 13.5% over the first quarter of 2021. Qualified Nursing revenue increased by $98.3 million from the first quarter of 2021 or 10.5%.

Regional approach in action

Ensign is proud of its regional approach to the skilled nursing market, particularly given its recent association with suburban, metropolitan and rural workforce success.

Port gave two examples of how Ensign’s market-centric model continues to shine, first with Willow Bend Nursing and Rehabilitation in suburban Dallas.

Willow Bend’s hiring efforts resulted in a more than 8% increase in its nursing workforce in the first quarter, even though the Dallas-Fort Worth area “is one of the most competitive hiring environments in decades,” Port said.

Coupled with staff growth, the 162-bed facility managed to increase occupancy rates by more than 8% in the first quarter and managed care occupancy rates by more than 17% — Willow Bend’s pretax profit rose 28%.

“These incredible results have been made possible because of the Willowbend team’s relentless focus on hiring and retaining high-quality employees,” said Port.

Owyhee Health and Rehab, a rural operator in Homedale, Idaho, has seen staff turnover less than a quarter of the industry average thanks to employee retention efforts, Port said.

Owyhee’s “family environment” helps create a safe environment where employees feel valued, he added.

The Idaho operator increased occupancy to 92%, an improvement of 9% compared to the first quarter of 2021. The census of Medicare professionals “skyrocketed” by 47% during the same period, Port said.

Progress at Owyhee and Willowbend reflects Ensign’s global progress in the first quarter alone, Port added.

Ready for growth in a seller’s market

Chad Keetch, Ensign’s CIO, said the company plans to expand its operations into new states and regional markets, but is very selective in choosing to partner or complete M&A deals. At the same time, the sellers are “unrealistic” in their pricing, he said.

“We continue to see some sellers coming into the market with really high expectations…we’re going to remain disciplined and think that needs to be corrected at some point,” Keetch added.

While Ensign has had to pass a variety of opportunities due to pricing, there are many deals that need to be executed, Keetch said. According to Keetch, Ensign has “about a dozen” deals in the works.

“[We are] Excited about the additions to our real estate portfolio during the quarter and the many more additions we anticipate this spring and summer,” said Keetch of Standard Bearer.

Nine recent acquisitions include one SNF and two senior living facilities in Arizona, two SNFs and two senior living facilities in California, one SNF in Texas and one senior living facility in Washington.

Ensign formally launched the REIT in the first fiscal quarter of 2022 with 95 properties and plans to grow with like-minded operators with more transactions expected in the first half of the year.

Analysts expect Standard Bearer to trade as low as $20 per share based on current valuation.

“It’s a lot of work, getting to know a whole new regulatory environment, new managed care partners, new hospital systems. It takes … many years to really build your reputation in a new state,” Keetch said.

That doesn’t mean the company shy away from deals outside of its current footprint, however.

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