What a difference a weekend makes.
On Friday, The Ensign Group (Nasdaq: ENSG) shares were down 6.12% at market close, after a new skilled nursing facility (SNF) payment system was floated by the Centers for Medicare & Medicaid Services (CMS). On Monday, shares were up 7.30% as of mid-afternoon, following a strong quarterly earnings announcement, including improved performance from the company’s SNFs.
The Mission Viejo, California-based company reported record consolidated revenue of $441.7 million for the first quarter of 2017. This was an increase of 15.3% over the prior quarter and signals that the major post-acute provider is back on track after struggling with some recent acquisitions, according to CEO and President Christopher Christiansen.
“With many of the challenges from 2016 behind us, we expect our newly acquired and transitioning operations, including the Legend portfolio, to continue the momentum created during the quarter,” he said Monday during a conference call with analysts.
Consisting of 18 skilled nursing facilities acquired last year, the Legend portfolio was a major transaction for Ensign, which has been on a buying spree in recent years. As of May 1, the company had 99 operations labeled as “recently acquired or transitioning,” which is the largest such number in Ensign’s history, Christensen pointed out. Overall, Ensign offers a range of post-acute services across 215 facilities, 20 hospice agencies, 17 home health agencies, and three home care businesses.
The underperformance of the Legend properties created a drag on Ensign’s earnings to close out 2016, but the company has managed to start driving improvements by focusing on a variety of “levers,” said Christensen.
“I wish it were just some secret sauce, or some small level that we pulled, or some great speech somebody gave, but it’s just not like that,” he said. “There were a lot of different things that were done, and most of it was returning to the fundamentals we know so well.”
As a result of these efforts, Ensign’s same-store skilled mix revenue increased 5.1% from the prior quarter, its same-store managed care revenue for transitional and skilled nursing grew 11% from the prior quarter, and transitioning skilled mix revenue grew 6.4% over that timeframe.
The positive signs on the skilled nursing front come during a stormy time for the industry as a whole. And there’s still significant room for improvement; average occupancy for recently acquired SNFs stands at 65.9%, compared with 80.8% for facilities acquired before 2011.
As for the “pre-rule” that CMS released last week, outlining a possible overhaul of the way SNFs are reimbursed by Medicare, Christensen sought to allay concerns. Such a change is not likely to occur before 2019 at the earliest, and Ensign and other industry players will have ample opportunity to weigh in on what any new payment system ultimately will look like, he said.
Furthermore, Ensign supports the move to tie payments more closely to quality of care being provided and is well-positioned to adapt to reimbursement changes in this vein.
“We viewed the CMS [pre-rule] as nothing but positive,” he said.
As for Ensign’s other service lines, its Bridgestone Living LLC assisted living/independent living subsidiary grew revenue by 7.2% year-over-year. Its Cornerstone Healthcare Inc. home health/hospice subsidiary grew revenue by 20.5% year-over-year.
Ensign’s first-quarter 2017 earnings per share of $0.34 beat analyst estimates by $0.01.
Written by Tim Mullaney
