Specialist
Former executive at The Ensign Group Inc
Agenda
- Skilled facilities market overview, highlighting the delayed supply chain increase and CMS’s (Centers for Medicare and Medicaid’s) proposed 2.7% increase in 2023 OPPS (outpatient prospective payment system) ASC (ambulatory surgical centre) reimbursement rates
- Ensign’s (NASDAQ: ENSG) unique cultural structure of putting responsibility and ownership at the market level, plus overall business strategy
- Ensign’s geographic differentiation based on reimbursement rates and growth expansion opportunities between US West and East Coast
- Company’s organic vs inorganic growth opportunities, including new ventures
- Ensign’s value-based case continuum model with The Pennant Group (NASDAQ: PNTG) and expectations to drive growth in H2 2022
Questions
1.
What are some significant macro trends within the skilled nursing and rehabilitative care market, encompassing challenges such as reimbursement rates, consolidation and the shortage of labour?
2.
Could you comment on Ensign’s unique leadership and cluster model, where it puts the responsibility and ownership at the market level? How has this approach worked for it in terms of economic and payer benefits? Could you highlight some potential downsides?
3.
Can you outline Ensign’s relative positioning in the market? How might the group differentiate itself from competitors? It’s been noted that Ensign has been able to adapt to the market it’s in, and doesn’t have one cookie-cutter approach depending on the state, as you highlighted. Could you elaborate?
4.
Specifically, who are some of Ensign’s major competitors out there? Has it struggled to achieve the same amount of scalability? I know the group has been able to achieve some scalability through being a larger conglomerate, but could you highlight a couple of names which could be a thorn in Ensign’s side?
5.
In terms of Ensign’s recent performance, what are some factors contributing to the group’s 14.6% YoY increase in total skilled service revenues? Do you expect this growth trajectory to continue over the next year or so, and could you predict any hindrances that might dampen growth in the next year?
6.
What are your predictions for Ensign’s same store and transitioning occupancy rates going into H2 2022 and early 2023? Same store and transitioning managed care revenue improved by 6% and 29.1% respectively for Q2 2022.
7.
Ensign witnessed skill mix days of 31.6% and the same store reaching skill mix days of 32.6%. You mentioned in your last Forum Interview [see Ensign Group – Market Update & Pandemic Impacts – 21 January 2022] that you would have expected a return to prior year levels, given the return of elective surgeries and some uptick in procedural volumes, but this has remained pretty much stagnant. What are your short- and long-term growth estimates here?
8.
What is your assessment of Ensign’s leasing method to gain revenue in terms of healthcare REITs [real estate investment trusts]? The group has been focusing on leasing out skilled nursing and senior living operations to the Pennant Group and CEO Barry Port noted these properties are subject to triple net long-term leases, and generated abundant rental revenue. How significant is this value-add, and do you think this is a reliable source of income for the next two years or so?
9.
If Ensign were to see any sort of loss – on the provider side, for example – how much does the revenue stream of renting out or leasing facilities help to make up for those losses? How significant is the value-add in terms of balancing costs and revenue growth?
10.
Do you believe Ensign has lived up to expectations for quality and outcomes in its multiple business lines? What are the strengths and weaknesses here, and would you highlight any improvements in providing care across the continuum? What might the group be lacking?
11.
Do you have any commentary on the quality and outcomes of Ensign’s provider care and how that translates into CMS [Centers for Medicare and Medicaid Services] star ratings? What is the general reputation on that front?
12.
How would you describe Ensign’s relationship with the medical community? Has the group found a balance working with physicians and health plans? What strengths and pain points would you highlight regarding the working relationship?
13.
Returning to acquisitions, you said Ensign will be following a slower and more steady approach, so how carefully should we be monitoring the group’s consolidation in the space? It’s undergone about 11 recent acquisitions, including senior living facilities and rehab centres, so how does this strengthen its position in terms of bed expansion and driving ancillary business growth?
14.
You mentioned being at the cluster level and giving the market leaders a lot of power in terms of what decisions they can make. From an acquisition standpoint, given these need to be signed off at the market level – so it’s like a decentralised authority system – how does this approach incentivise growth and is it better or worse compared to in other companies where acquisitions need to be approved by the superior? What are the advantages and disadvantages here in terms of decision making?
15.
Would it be beneficial for Ensign to pursue a JV strategy, which might assist in driving patient referral volumes and profitability? What are your predications around the company going down this path?
16.
What is the likelihood of Ensign being acquired or the group divesting any parts of its business in the near future? Do you foresee any larger conglomerates or health systems buying it up? Would it make strategic and financial sense?
17.
How significant have the labour challenges been for Ensign particularly? You mentioned staffing issues have been affecting bottom-line growth in general and are adding to the delayed supply chain. How are these developments affecting the group’s bottom-line growth specifically, and what is your expectation for it to rebound or normalise?
18.
Shifting gear to the reimbursement payer mix and CMS guidelines, what is your outlook for the skilled nursing facilities at Ensign for reimbursement, given CMS just proposed a 2.7% increase in 2023 OPPS [outpatient prospective payment system] ASC [ambulatory surgical centre] reimbursement rates, proposing to end the USD 340bn Medicare reimbursement cuts? What does this mean for the group and would you highlight anything else around reimbursement?
19.
Can you outline Ensign’s ability to provide value-based care at the local level? Do you believe the group has taken relevant strides to effectively implement this strategy across the care continuum?
20.
Could you provide a market-to-market breakdown and an overall view of Ensign’s payer mix across Medicare, Medicaid, commercial and self-pay, state-to-state and coast-to-coast? How does that payer mix steer the group’s decision on where to position itself in the market geographically?
21.
How would you assess Ensign’s financial health and leveraging profile, given its recent announcement of a USD 600m credit facility? Is it as stellar as the group would have you believe and does it have the bandwidth to deal with any potential forthcoming headwinds?
22.
What are the best- and worst-case scenarios for Ensign and the skilled nursing operating environment as a whole? If you were an outsider looking in, what top three takeaways would drive your decision-making process, especially speaking on risk, staffing and anything that investors should pay attention to?
