THE ENSIGN GROUP 4TH QUARTER REPORT:  MARVELOUS IF YOU ARE AN INVESTOR (BUT NOT IF YOU ARE AN EMPLOYEE AND/OR A TAXPAYER).

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    As I noted a couple of days ago, The Ensign Group (Ensign) was scheduled to release its 4th quarter financial report and hold a conference call.  They did that. This blog post will provide a basic overview of their 4th quarter and annual results.[1] I will be reporting on the Centene Corporation and the real estate investment trusts in the weeks ahead.

    It is important to note that the late Roy Christensen, Ensign founder, and current/past Ensign executives were and are very sophisticated financiers.  Christensen founded Beverly Enterprises in the 1960s, sold it, and taught business at Brigham Young University until he founded the Ensign Group in 1999.  Most Ensign executives and board members have an association with the Marriot School of Business at BYU.  There is no other nursing home corporation like the complexly organized Ensign. It is becoming increasingly complex to the advantage of shareholders and executives but apparently not to taxpayers, patients, and employees (as I will demonstrate below).

Highlights of Ensign 4th Quarter Results

  • Earnings per share of $4.14 – an increase of 13.7% over the prior year.

  • Earnings per share for the quarter of $1.06 – an increase of 23.3%.

  • Consolidated revenues for the year were $3.025 billion – an increase of 398.5 million or 15.1% over the prior year.

  • Net income was $60.5 million for the quarter – an increase of 24.1% over the prior year quarter.

  • For the year, adjusted net income was $235.7 million – an increase of 13.8% over the prior year.  Given an annual 2022 revenue of 3.025 billion and a net income of $235.7 million, percent net income was 7.8%.  However, Earnings Before Interest, Taxes, Depreciation & Amortization EBITDA – a more important cash flow statistic – was $383.5 million or 12.6%).

  • The company’s liquidity is increasingly strong with $316 million in cash and cash equivalents on its balance sheet and a $593.3 million line of credit.

It’s All About the Real Estate

    Quarterly reports, annual reports, and proxy statements can become eye glazing for the public.  The way we need to look at Ensign and the rest of the nursing home industry is this:  Medicaid and Medicare (mostly Medicaid) provide revenue that sustains a real estate industry.  Hence, direct care services are robbed for the sake of shareholder interests.

    In the past couple of decades, tax code adjustments have resulted in a financial transformation of long-term and skilled nursing business.  Limited liability entities, private equity firms, real estate investment trusts, and individual/family trusts have blossomed like tulips in Springtime.  Ensign is a cutting-edge bellwether of financialization, and the tax arbitrage associated with it. Let’s take the separation of property from operations (OPCO/PROPCO).[2]  Property has been increasingly separated into  separate subsidiaries of parent corporations or sold to REITs and leased back.  However, Ensign has upped that game.  The following indicates the segmentation of the company into separate entities – most of which were not discussed in the quarterly report.

    The above graphic does not include a couple of later entities – Standard Bearer (a captive[3] REIT) and a captive insurance company.[4]  A spinoff has tax advantages for shareholders.  Added advantages for Ensign in its spinoff of property into CareTrust REIT include avoidance of capital gains taxes and increased corporate assets/value.  CareTrust is an “umbrella partnership real estate investment trust,” otherwise known as an UPREIT.  By transferring property to an UPREIT, rather than selling it, capital gains taxes are avoided, the transferee receives “operating units” (OPUs), and receives returns from the triple net leases to other nursing homes (under triple net leases, leasees pay insurance, maintenance, and taxes – what a deal!). 

    As the above diagram indicates, Ensign undertook a spinoff in 2016 by spinning out its assisted living facilities into the Pennant Group – an Ensign spinoff. Ensign leases property to the Pennant Group and retains a major share of the stock.  This model illustrates the OPCO/PROPCO set up in which property becomes a tradable commodity rather than a necessary tool for producing care.  Finance dominates production.

Financialization

    Financialization throughout the U.S. economy has dampened economic growth.  Furthermore, stagnant wages, a diminishing upwardly mobile middle-income class, wealth transfer to super-rich individuals and corporations, and a low-wage underclass are due to the separation of finance from productivity.[5]  Nowhere is that phenomenon more apparent than in the U.S. government-funded healthcare system.  The massive real estate substrate of industrialized medical care is draining resources from care.  There is no rational justification for exceedingly low pay, and poor care when so few are making so much from the trillions of dollars poured by Americans into the health care system.

Summary

    From a financial and technical perspective, this post has been somewhat superficial.  Nevertheless, we need to outline the overall financialized, industrialized, government-funded U.S. healthcare system and have a very serious public conversation about how the hardworking and patriotic people of the U.S. are being fleeced.  I will be clarifying and filling in the concepts that I have introduced in this post. In the future you will see more regarding UPREITs and OPUs, shell companies (Ensign has over 400 subsidiaries, all are LLCs, all incorporated in Nevada), and other financial machinations that are robbing American taxpayers.

[1] You can listen to the conference call and download the text of the call here:  https://investor.ensigngroup.net/news-releases/news-release-details/ensign-group-reports-fourth-quarter-and-fiscal-year-2022-results

[2] For a very good discussion of REITs, Financialization, and nursing homes, see Rosemary Batt & Eileen Applebaum (July 9th, 2022), “The Role of Public REITs in Financialization and Industry Restructuring.”  Working Paper No. 189.  Washington, D.C.:  Institute for New Economic Thinking.

[3] A REIT with the property of only one corporation – The Ensign Group in this case.

[4] An insurance company that underwrites only the entity that incorporates it.

[5] For a very good discussion of financialization, see:  Rana Foroohar (2017), Makers and Takers:  How Wall Street Destroyed Main Street.  New York:  Crown Publishing.

In 2016, the General Accounting Office Makes Recommendations Regarding Accurate and Reliable Nursing Home Financial Reports:  HHS Says “Thanks, but No Thanks.”

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    In 2016, the General Accounting Office (GAO) reported the results of its investigation into the reliability and validity of financial information submitted by nursing home corporations.  The GAO was tasked with determining how skilled nursing facilities “spend their Medicare and other revenues.”[1]  In its report, the GAO recommended that CMS undertake two actions: “ (1) improve public stakeholders’ ability to locate and use SNF expenditure data and (2) ensure the accuracy and completeness of the data.”[2] According to the report, “HHS concurred with the first but not the second recommendation, citing resource considerations.”[3]  The agency’s partial concurrence is farcical.  What is the benefit of making financial data available to the public if the data is inaccurate and unreliable?

    HHS disagreement with a reasonable recommendation by the GAO that CMS demand honest cost reports from contractors, should evoke the public into a profound and angry reaction. For an agency with a FY 2023 request for discretionary budget authority of $127 billion and $1.7 trillion in mandatory budget authority[4] a project for making financial data easily accessible to the public is de minimus in the overall scheme of its expenditures.  The cost of a reasonably accessible database containing well-audited cost reports from each facility would be a trivial expenditure – so trivial that it would have no meaningful impact on government deficits and debt.

    The problem is that the public has not been stunned by the rejection of the GAO investigators’ recommendations and their stated belief that  “CMS should provide reliable SNF expenditure data”[5] because the public has not been made aware of the report or what it contains.  That in itself is puzzling.  A government agency for the responsibility of nearly $2 trillion worth of federal expenditures is shirking its responsibility for informing the taxpayers – the funders – about how their money is spent – let alone whether it is effectively and efficiently spent.  This should be big news but advocates and activists have failed to take advantage of it.

    Consequently, the nursing home system remains a closed system that is troubling to most Americans, but they can’t articulate the financial machinations responsible for the lack of investment by corporations in an adequately paid workforce and quality of care.  Absence of openness in a complex social system funded by government inevitably leads to the bigger problem of corruption.

[1] “Skilled Nursing Facilities: CMS Should Improve Accessibility and Reliability of Expenditure Data,” (2016), Washington, D.C. General Accounting Office, Highlights of GAO-16-700.

[2] Ibid

[3] Ibid

[4] https://www.hhs.gov/about/budget/fy2023/index.html

[5] GAO, Op. Cit.

THE ENSIGN GROUP AND CENTENE CORPORATION ANNOUNCE DATES FOR PRESENTATION OF 4TH QUARTER, 2022 RESULTS

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    The Ensign Group and Centene Corporation have announced dates for presentation of 4th quarter, 2022 results – February 3rd and February 7th respectively.   Ensign and Centene are the two largest and the only publicly listed corporations earning the bulk of their revenue from Medicaid. The Ensign Group is engaged exclusively in long-term and skilled nursing care.  Centene primarily provides Medicaid managed care services to states.

    Given that Medicaid is means-tested and lower tier poverty medicine, it is notable that these two corporations have experienced rapid revenue growth and high earnings while lavishing executives with generous compensation packages.

    In this post, I will review Ensign Group’s 3rd Quarter, 2022, results, which will be a point of comparison for the upcoming 4th Quarter results and cover more of Centene’s financial performance and executive pay in a later post.  The purpose of this post is to focus attention on the dissonance between claims of industry-wide low earnings made by American Health Care Association – the nursing home industry’s propaganda organ – and public information available through the Securities and Exchange Commission.  The AHCA’s claims are not verifiable because closely held corporations aren’t required to make their consolidated financial statements public.


   Selected Ensign Group 3rd Quarter, 2022 Results

  • Revenue, Three Months Ended September 30: 
    $770,005,000 (compared to 668,530,000 2021 3rd Quarter).

  • Revenue, Nine Months Ended September 30:
    $2,215,936,000 (compared to $1,934,319 to 2021).

  • Net Income 3rd qtr. 2022:
    $56,242,000 (7.3%)
    Compared to $48,344,000 3rd qtr. 2021 (7.0%)

  • Net Income, Nine Months Ended 2022:
    $2,215,936,000 (compare to $1,934,319,000).

Executive Compensation

    We will not know Ensign executive compensation until the company releases its proxy statement in April.  The following are 2021 compensation data for executives:

  • Barry R. Port, CEO:  $7,421,472 (13.9% increase over 2020 compensation).

  • Suzanne Snapper, CFO: $6,532,955 (19.5% increase over 2020).

  • Chad Keech, CIO: $4,275,539 (17.7% increase over 2020).

  • Spencer Burton, President and Chief Operating Officer: $5,029,146 (9% increase over 2020)

Ensign Stock Has Been Increasing During Stock Market Down Year:

    Between late 2021 and the end of 2022, the NASDAQ had declined by 30%.  It was a bad year.  However, Ensign stock was trading at $77.20 on November 29, 2021.  It closed at $94.00 yesterday (February 1, 2023) – a 22% increase.

    Christopher Christensen, CEO Emeritus owns $1,478,499 shares of Ensign stock).  The value of Mr. Christensen’s stock increased in value by $24,838,783. 

    The three beneficial owners: BlackRock (15.1% or 8,340,870 shares), Wasatch Advisors (11.1% or 6,121,470 shares) and Vanguard (11% or 6,104,354 shares).

We must insist on truthful information from the industry receiving taxpayer funds for providing medical care to Americans experiencing poverty. As the only public information we are receiving suggests, investors and executives are excessively rewarded while wages and salaries for direct care workers remain seriously low. If the bulk of financial information is hidden behind a veil of secrecy, taxpayers and their representatives do not have a voice in determining what we should be receiving for what we are paying.

Misinformation About Social Security & Medicare is Harming America’s Elderly

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By:

Dave Kingsley

Scapegoating the Elderly for U.S. Budget Deficits & Debt

Pie charts, bar charts, tables, graphs, and other depictions of the federal budget abound in the media. These pictorial representations of what Congress budgets for such things as education, agriculture, health care, and so forth invariably include all of Social Security and Medicare. Hence, they are consistently wrong. None of the expenditures for Social Security are budgeted and have absolutely no impact on the budget or deficits. Less than half of Medicare expenditures are budgeted because beneficiaries pick up a large amount of the costs.

Social Security benefits are “earned” by beneficiaries who have paid in during their working years through a payroll tax. Benefits for each beneficiary are actuarily tracked and payouts are based on what is paid in.

Dr. Max Skidmore, University of Missouri Curators’ Distinguished Professor of Political Science (Emeritus) explains the history and functioning of Social Security in an accompanying blog post today. Dr. Skidmore is a leading expert on Social Security and colleague of those of us contributing to this blog (see e.g. his book Securing America’s Future: A Bold Plan to Preserve and Expand Social Security with a Foreword by former senator George McGovern).

Over Half of Medicare is Paid for by Beneficiaries Through Payroll Taxes, Premiums, and Out of Pocket Expenses. All of Social Security is Off Budget Because it is Earned by Beneficiaries.

In calendar year 2021, Medicare expended $839.3 billion, of which $405.4 billion (48.3%) was budgeted. None of the $1.14 trillion expended by Social Security for earned benefits are part of the federal budget. Hence, my estimation is that of an approximately $5.5 trillion 2022 FY budget, only $.405 trillion (7.4%) was budgeted for all of Social Security (0%) and Medicare (7.4%).

The Harm Done by Misinformation

Claims that the elderly are receiving the biggest share of the annual budget dampens the public’s support for much needed assistance with out-of-pocket Medicare costs, home health care, housing assistance (including assisted living), and other essential services and financial needs for daily living. Financial moguls such as the late multi-billionaire Peter G. Peterson and conservative politicians have been leading a propaganda war against Social Security and Medicare from their inception in the 1930s and 1960s.

Many seniors are suffering due to the cost of pharmaceuticals and co-pays, deductibles, and premiums. Transportation, housing, food, along with medical care and other costs for the needs of daily living are robbing a huge proportion of the growing 65+ population of a decent life in their elderhood. The blatant falsehoods coming from some super rich Wall Streeters and conservative politicians are causing pain for hardworking people who are being denied a decent quality of life. We intend to fight back!

Does the Attack on Social Security by Conservatives Make Any Sense? Read What One of America’s Leading Experts on Social Security Has to Say.

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By:

Max Skidmore

What About Social Security?

The Social Security Act became law in 1935 and created a system of “social insurance.” Workers pay into trust funds through deductions from wages, and employers match the workers’ contributions. Benefits are calculated on the thirty-five years of highest earnings. The maximum amount of wages subject to Social Security (FICA) tax for 2023 is $160,200. The system began to pay benefits in 1940.

Originally, the Act called only for retirement benefits, but through the years the system expanded to include payments to spouses, survivors, and the disabled. Thus, Social Security now provides life insurance, as well as retirement, and also protects against lost wages resulting from disability before one reaches retirement age.

Roughly a third of Social Security’s checks go to people younger than retirement age; that is, to survivors of deceased wage earners and to the disabled. The elderly are not the only ones who benefit from Social Security. Virtually the entire population does¾either through receipt of benefits, insurance coverage, or being freed from the necessity of caring for their elderly relatives.

Benefits are indexed to inflation, so that purchasing power remains constant through the years. Moreover, benefits continue through the lives of beneficiaries, however long they may live; one cannot outlive benefits.

As limited as the benefits are (and it would be an excellent idea and easily achievable to expand, not reduce, them), most retired Americans receive a substantial portion of their income from Social Security. For the average retiree, Social Security accounts for nearly a third of the total. More than a third of America’s retired elderly, in fact, count on Social Security for half or more of their total income. Substantial numbers of retired people have no income at all except for their Social Security. For millions of Americans, the benefits they receive from Social Security enable them to escape poverty and live in reasonable comfort.

Despite scare propaganda from groups who would profit from privatization, the system’s finances are sound. The highly publicized times for depletion of the trust funds vary from year to year, and are always based on “intermediate projections” from the annual reports from the system’s Board of Trustees. The trustees, themselves, caution in their reports that depletion years are to be considered only as estimates based on a huge number of assumptions. They are not to be taken literally.

Nevertheless, commentators  generally treat them as firm and unquestionable, and mistakenly refer to the trust funds’ impending “bankruptcy.”  This is nonsense. The projections are extremely cautious, and likely are quite pessimistic. “Bankruptcy” is not an appropriate term for a federal, tax-funded, program. FICA taxes in would continue to come in, regardless of trust fund balances. Moreover, the trustees always publish a “low-cost,” more optimistic, projection that tends to present the future of the trust funds as secure in the long run. The conditions that the low-cost options project are just as likely as the Intermediate projections to materialize. If conditions were to become less favorable to Social Security, however, it would be a simple matter to adjust tax rates, lift or remove the cap, etc. Dire warnings about “unsustainability,” are scare propaganda designed to frighten the public in hopes that they will accept unwarranted modifications to the system based on conservative ideology, not finances.

Social Security is remarkable, it keeps millions from poverty, provides them with independence, and all the while it operates at far lower expense (less than 1% for administration) than any other income-transfer system. Also, it is off budget. Lowering benefits would not affect the deficit or the national debt; it would merely build up bigger trust funds, while continuing to tax workers, but providing them with nothing for their taxes. It would not provide balance to the budget.

Why, then, is there any opposition to such an efficient and worthwhile system? Why are Republicans such as Senator Ron Johnson urging that the system should require re-authorization every year, or else vanish?

Johnson, of course, will never be considered as among the more able or thoughtful senators. Senator Rick Scott, though, until this November, was chair of the National Republican Senatorial Committee, an official Republican organization. He proposed that Social Security and Medicare be authorized only for five-year periods, ceasing to exist if Republicans gain control and fail to re-authorize them.

Most egregious of all, and openly revealing the obvious betrayal by Republicans of the decades-long consensus regarding the value of Social Security, are the bullying threats from Senator John Thune. Thune currently is number two among the hierarchy of Senate Republicans. It has just been announced that he intends to hold the debt ceiling hostage. That is, he intends to block any elevation of the debt ceiling unless there are cuts to Social Security. This reveals the reckless cruelty of current Republicans. Incidentally, it also reveals that the dangers of the “debt ceiling” that performs no useful function; it saves not one dollar, and creates opportunities to cause chaos. It only permits irresponsible politicians, such as Thune, to create mischief.

Some of the opposition arises from investment bankers and other wealthy groups who might benefit from privatization. Most, however, comes from extreme conservatives who simply do not like government programs, regardless of their many vital functions. Do they not recognize how cruel it would be to slash the incomes of those who count on it, including those of very limited income?

The cruelty is the point. Many conservatives do not ignore the cruelty that they would cause; rather, they welcome it. Ronald Reagan began to redistribute income upward, and his party has since continued to do so with a vengeance. Until recently, they generally kept their intentions hidden. Now, though, they are openly expressing their hostility to the less fortunate of their constituents. Republicans no longer find their motto embarrassing, no longer do they find it necessary to disguise it. It is, “Soak the poor, and reward the rich,” and clearly and overtly is a common theme of their proposals. They recognize few, if any, “deserving poor.” To be poor is to be fair game. Anyone who wants to avoid institutionalized cruelty should just go out and get rich.

As the Herblock cartoon in 1964  put it (portraying the message from Republican presidential candidate, Senator Barry Goldwater), the poor should simply go out and inherit department stores.

MEDICAID IS POOR PEOPLES’ MEDICINE & POOR PEOPLES’ MEDICINE IS POOR MEDICINE.

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By:

Dave Kingsley

The Southern Segregations’ Plan to Institutionalize Racism and Inequality

In a conversation with Lyndon Johnson prior to passage of Medicare and Medicaid, the late segregationist Congressman Wilbur Mills of Arkansas told President Johnson that across town from his mother in Arkansas, “…a Negro woman has a baby every year. He went on to explain that every time he went home, his mother complained that the “Negro woman now got eleven children.  He proposed that welfare should be designed to let “the states pay for more than a small number of children if they want to.”

Joseph Califano, Jr., President Johnson’s Secretary of Health Education & Welfare (HEW) in the room at the time noted that Johnson turned to him after Mills left and said,

 “You hear that good, now.  That’s the way most members feel. They’re just not willing to say it publicly unless they come from redneck districts.”

Most member of congress aside, Mills was not your run of the mill congressman.  He was the influential Chairman of the exceedingly powerful and critical House Ways and Means Committee.  He was a product of Southern one-party politics run by the all-powerful Southern planter class.  Mills and his Southern brethren in the Senate and House had in 1957 signed and issued the “Southern Manifesto” – a protest against Brown v. Board of Education and the civil/human rights enveloped within the Supreme Court decision. 

As I will explain, these segregationists had designed and legislated a precursor to Medicaid into existence. The passage of the Mills-Kerr program in 1960 included the framework of Title 19 of the Social Security Act in 1965 (Medicaid).  Medicaid became Kerr-Mills 2.0.  Designed into Kerr-Mills was devolution of power over federal welfare to states, which would allow them to arbitrarily place onerous administrative burdens on qualified applicants and maintain a lower status for African Americans.  They were successful in keeping Hill-Burton funded hospitals segregated for ten years after Brown v. Board of Education had declared that “separate is not equal.”

The Concepts of Kerr-Mills – Especially the Power of States Over Welfare – Are Barriers to Transforming an Embarrassingly Bad U.S. Medical System

Like the Hill-Burton Act of 1945, which initiated a massive hospital building program across the U.S., Medicaid is funded by the states with federal matching funds.  Administration and regulation of Medicaid funded nursing homes have been left to the states.  Long-term care and skilled nursing operators have benefited from lax oversight and political power in state houses.  As should have been expected, legislatures and agencies have been captured by deep pocketed industrialists and are therefore likely to serve the interests of operators at the expense of ethical and humane medical care.

States and powerful interests have devised ways to siphon off Medicaid funds for the benefit of corporations and special interests.  Consequently, poverty medicine is enriching corporations and wealthy individuals (see previous posts on this blog re: The Ensign Group & Centene Corporation) while the medical care and health of poor Americans have been deteriorating.  For instance, the state of Indiana discovered a loophole in federal law that allowed the state to buy nursing home licenses from for-profit corporations and skim a considerable amount of nursing home funding off for other purposes.  The nursing homes continued to run the facilities and extract their usual cash flow as before.

Having studied cost reports submitted by thousands of nursing home facilities, I can safely conclude that the states shield the industry from exposing cash flow into and out of the system.  If you can complete daunting tasks of gaining access to legally required and public cost reports (or pay a considerable sum for them) you will discover that you are dealing with closely held corporations that are not required to make their financial statements public. Therefore, you can follow the money to a point.  But the pools of payments to their parent corporations’ shell companies are kept secret.  The public cannot see consolidated balance sheets, income statements, and cash flow statements of parent corporations and holding companies.

Without clear and honest financial information, no amount of reform of what most everyone agrees is a bad system is possible.  The industry can and does engage in misinformation and falsehoods to maintain myths that the biggest problem in long-term and skilled nursing care is skimpy government funding.

SCOTUS ALERT!  THE CASE OF HEALTH AND HOSPITAL CORPORATION OF MARION COUNTY v. TALEVSKI IS BEING HEARD BY THE SUPREME COURT TODAY

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By:

Dave Kingsley

Today the Supreme Court is hearing Health & Hospital Corporation of Marion County v. Talevski.  If the S.C. overturns the 7th Circuit decision in this case, it will not be merely “earth shaking” for nursing home patients, it will be an 8.0 earthquake followed by a tsunami for all Medicaid beneficiaries. For decades, the court has upheld the right of beneficiaries of Social Security programs whose rights are violated by states to seek redress through the federal courts.  Overturning this body of law has grave implications for beneficiaries of such programs as Aid to Families with Dependent Children (AFDC, replaced by Temporary Aid to Needy Families or TANF), Medicaid/Medicare funded long-term and skilled nursing care, and the Children’s Health Insurance Program (CHIP).

In addition to the derogation of human and civil rights resulting from an S.C. reversal of a body of law upholding rights such as those delineated in Federal Nursing Home Reform Act (FNHRA), the dimension of this case of major concern to me is the enhancement of states’ rights and corporate power in federally funded health and welfare programs.  The nursing home industry and major corporations such as The Ensign Group, UnitedHealth Group, Molina, Centene, Anthem, and Aetna/CVS violate regulations with impunity now – imagine how they will ride roughshod over states and beneficiaries if the 7th Circuit decision goes down.

The facts of Talevski v. HHC involve an elderly dementia patient by the name of Gorgi Talevski who was managed with psychotropic drugs and transferred from a facility in violation of FNHRA requirements.  Although the family fought the psychotropic constraints and transfer through state and CMS procedures and guidelines, they were frustrated by agency inaction and lack of relief.  The facility, HHC of Marion County, is part of a chain of facilities owned by the State of Indiana.

Ivanka Talevski, Mr. Talevski’s wife filed a suit in federal court (their daughter Susie is the attorney in the case).  The district court held that federal programs legislated in accordance with Congress spending powers do not provide for beneficiaries’ relief in federal courts and dismissed the action.  On appeal, the 7th Circuit reversed the district court’s decision and found in favor of Mr. Talevski.

The specific question in this case is whether patients whose FNHRA rights are violated can seek redress through the federal courts or whether their only recourse is appeal to state and federal agencies and/or through a personal liability suit. The 7th Circuit, citing precedence, decided that patients can sue a state in federal court when they incur clear violations of their FNHRA rights and reversed and remanded the case back to the district court.

It is likely that the six-member majority of extremist ideologues on the Supreme Court will overturn the opinion of the7th Circuit – a relatively conservative court with 7 members appointed by Republican presidents and 3 appointed by Democratic Party Presidents. The ideology and decisions of the S.C. conservative majority have been synchronized with the Republican Party and the reactionary conservatives now dominating the party.  Extremist conservatives have been in a decades-long crusade to dismantle the administrative state.  Their intention is to loosen all restraints on corporate behavior.

*6 F. 4th 7713 – Court of Appeals, 7th Circuit 2021.  Can be accessed at: https://scholar.google.com/scholar_case?case=10683715986232030526&q=talevski+v+health+and+hospital+corporation+of+marion+county&hl=en&as_sdt=6,26.  See also: https://www.scotusblog.com/case-files/cases/health-and-hospital-corporation-of-marion-county-indiana-v-talevski/; https://www.brennancenter.org/our-work/research-reports/supreme-court-shadow-docket

CENTENE CORPORATION, AMERICA’S 26TH LARGEST CORPORATION AND A MEDICAID CONTRACTING FIRM, REPORTS STRONG 3RD QUARTER EARNINGS

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By:

Dave Kingsley

Centene Corporation’s Business & 3rd Quarter Results

Centene Corporation contracts with states to manage Medicaid programs.  Two-thirds of the company’s revenue flows from means-tested, welfare, programs.  The other one-third of its revenue is derived from Medicare, Tri-Care, and their prison contracting subsidiary Centurion.  Basically, the bulk of this corporation’s business is poverty medicine. 

Centene purchased a non-profit organization in the 1990s and took it private.  In 2001, the company issued an IPO.  In a mere two decades, Centene increased its revenue to $111 billion (2021 revenue).  In 2021, Fortune magazine placed it at 24th in the “Fortune 500.”  Ahead of Centene was Anthem at 23rd with revenues of $122 billion, at 22nd was General Motors with revenue of $122.5 billion. As an illustration of the rapid growth of this poverty-medicine company, in 2018, it was ranked 63rd in the “Fortune 500,” with revenue of $48.6 billion.

Centene’s 3rd quarter revenue of $35.9 billion was a 11% increase over their 2021 3rd quarter revenue of $32.4 billion.  The company is on track to increase its 2022 revenue to $135 billion.  According to the 3rd quarter report, “The increase was driven by organic Medicaid growth, primarily due to the ongoing suspension of eligibility redetermination, 22% membership growth in the Medicare business, and [our] acquisition of Magellan Health, Inc. (Magellan), partially offset by the PANTHERx divestiture.”

Centene is predicting (called guidance in finance lingo) an increase in 2022 earnings per share of $5.65 to $5.75.  The company’s stock which is trading above $81 per share as I write this, has been outperforming the DOW & S&P since the equities market moved lower at a rapid rate in late November of 2021.  On November 29, 2021, Centene closed at $73.77 and has been incrementally moving up while the overall market has been moving down.

Executives, Board Members, & Shareholders

The recently retired Centene CEO/Chairman John Neidorff is one of the highest paid corporate executives in the United States.  Over the past 3 years his compensation has totaled $72,033,192.  He owns 1.5% of 560 million outstanding shares of Centene stock – today worth over $80 per share.  Hence, his wealth in stock alone is worth approximately $680 million.

Sarah London – Neidorff replacement as CEO – earned $15 million in 2021 before her promotion to CEO.  The eleven 2021 board members earned from $335,000 to $426,000.  In 2021, two powerful former congressmen on the board, Richard Gephardt and Tommy Thompson, were paid $426,923 and $403,046 respectively. 

An activist investor (Quinten Koffey of Politan Capital Management) acquired 2 percent of the stock and made a successful move to oust Neidorff.  London, his successor, was most likely in on the move.  The board has been restructured as part of the company’s long-term plan to improve its profit margin (https://www.healthcaredive.com/news/neidorff-retire-centene-activist-investor-board-shakeup/611465/).

The Ensign Group, America’s Largest Nursing Home Corporation, Reports Strong Third Quarter 2022 Results

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By:

Dave Kingsley

A Business Success Story

Since its founding in 1999, The Ensign Group (Nasdaq:  ENSG) has experienced remarkable financial success and growth. (See, e.g., Kingsley & Harrington (2021) *.  That trend continues.  The company reported a 3rd quarter 2022 revenue of $770 million – an increase of 15.2% over the same quarter in 2021 – and raised its expected 2022 revenue from $3.01 billion to $3.03 billion – an increase of 14% over 2021 and exceeding 2020 by 32%. 

With a net quarterly income of $56,761,000 on a revenue $770,005,000 for the quarter, Ensign’s net was a positive 7.3%.  The company reported Earnings Before Interest Taxes, Depreciation & Amortization or EBITDA (a far more important metric from a cash flow perspective) of 12.5%.

Across all industries and sectors, a net and EBITDA of 7.5% and 12.5% respectively reflect robust earnings.  CEO Barry Port stated that, “Given the improvements we continue to see in occupancies, skilled mix and reimbursement, we are raising our annual 2022 earnings guidance again to $4.10 to $4.18 per share.”  The company has 57 million shares outstanding.

Asset Management Firms/Institutional Investors are Bullish on Ensign Group Stock

On Friday, October 28, 2022, Ensign stock, which has been outperforming the DOW and S&P, closed at $89.96 per share. Since the beginning of a rapid decline in the market on November 29, 2021, the DOW has dropped from 35,135 to 32,861 and the S&P has declined from 4,655 to 3,901 (as of the closing bell on Friday, October 28, 2020) – declines of 6.5% and 16% respectively.  Conversely, Ensign stock has increased from $77.20 per share to $89.96 in the same period – a 16.5% increase.

At the date of Ensign’s issuance of its 2021 proxy statement, beneficial owners included BlackRock (15.1%), Wasatch Advisors (11.1%), and Vanguard (11.0%).  Hence, stock is concentrated in three asset management firms owning 37.2% of the company’s shares on behalf of pension, college endowment, insurance, sovereign wealth, 401K, and other pools of capital.  Executives and board members own 4.7% of the 57 million shares.  Ninety percent of Ensign stock is owned by asset management firms such as T. Rowe Price, State Street, PIMCO, etc. – in addition to the 40+ percent owned by BlackRock, Wasatch, Vanguard, and executives/BOD members (5% is required for beneficial ownership).

CEO Barry Port’s 2021 compensation package of $7,421,472 is approximately 209 times the typical CNA wage over one year of full-time work. CFO Suzanne Snapper’s compensation totaled $6.5 million, CIO Chad Keetch and COO Spencer Burton were awarded $4.3 million and $5.0 million respectively.  Compensation of $23,259,112 for the four top executives in 2021 was an increase of 37% over the $16,961,920 they were awarded in 2020.  

Ensign’s Path to Dominance in the Long-term & Skilled Nursing System

In the past quarter, Ensign added 20 facilities (mostly in Texas) to its portfolio of 268 healthcare operations, 26 of which also include senior living operations, across 13 states.  But this doesn’t tell the whole story.  At the end of 2021, the company’s skilled nursing facilities were embedded in a network of 400 subsidiaries (all LLCs incorporated in Nevada).  These subsidiaries have been set up as property, insurance, management, and other ancillary service LLCs which appear as related parties on Ensign facility cost reports (examples of 5 facilities in the Kansas City area will be used as illustrations below).

During the past decade, Ensign has spun out a considerable amount of real estate (nursing homes and assisted living facilities) into two separate corporations:  the CareTrust Real Estate Investment Trust (skilled nursing facilities) and the Pennant Group (assisted living properties).  The company has an interlocking financial and management relationship with both spin off corporations, the details of which are beyond the scope of this post.

As referenced earlier, my colleague Charlene Harrington and I published a study we conducted last year of Ensign growth and development.  Based on the board bios and the background of founder Roy Christensen, we noted a strong relationship between the company and the Marriott School of Business at Brigham Young University.

Ensign executives and board members are highly sophisticated finance and real estate professionals. Their astounding success stems from sophisticated real estate and financial structures that have been devised to maximize cash flow from Medicaid, Medicare, and generous tax advantages.  As noted above, Ensign executives have been richly rewarded by their board for their financial performance.

*”The Financial & Quality Metrics of a Large Publicly Traded U.S. Nursing Home Chain in the Age of COVID-19,” International Journal of Health, 1-13, 2022.  For a copy of the article, contact David E. Kingsley, dkingsley@tallgrasseconomics.org, 785 550 3576.

In the Nursing Home Business, Medical Care Versus Financial Performance Is an Important Dimension

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Dave Kingsley

In a blog post, the financial facets of a company like The Ensign Group (“Ensign”) in the LTC/SKN business, must, of necessity, be distilled into and summarized through information from reports submitted to the Securities & Exchange Commission, cost reports submitted to state agencies, and CMS data. From a scientific perspective, all of that of data should be triangulated with other data related to capital markets, the state of the economy, Bureau of Labor Statistics wage/salary data, and so forth. 

Furthermore, given the financial information available to advocates and researchers, we should be able to consider the congruence between return on investment (shareholder interests) and the quality of care provided to patients.  LeadingAge and the American Healthcare Association/National Center on Independent Living (AHCA/NCAL) will invariably claim that businesses in LTC/SKN are operating “on a slim margin,” a “low net,” or some such term implying that it’s really a tough business in which providers are merely trying to stay solvent.

Those claims by industry representatives are based on cost reports submitted by each facility to state agencies – not on the financial metrics of parent corporations, e.g., income statement, balance sheet, and cash flow statement.  In the previous post on this blog, I discussed the robust earnings reported by Ensign for the 2022 3rd quarter.  In this post, I juxtapose cost reports submitted by the following five Ensign facilities on the Kansas side of the Kansas City metroplex to reports submitted to the SEC: (1) Riverbend Post-Acute Rehabilitation, (2) Shawnee Post-Acute & Rehabilitation Center, (3) The Healthcare Resort of Kansas City, (4) The Healthcare Resort of Leawood, and (5) The Healthcare Resort of Olathe.

These five facilities reported a combined net loss of $3,678,304 on a combined revenue of $46,801,526 – an 7.9% net loss overall.  In the previous post, I noted that the company reported +7.3% net for all operations.  But all Kansas facilities but one – Riverbend Post-Acute – reported a net loss.  Riverbend had a small net gain of $3,345 on revenue of $9,753,360 – a miniscule 3 tenths of 1%.

CEO Barry Port stated the following in his 3rd Quarter press conference: “We are grateful for the efforts and commitment of our teams, caregivers, and leaders who work endlessly to love and support one another, which allows for the high-quality outcomes they consistently achieve.”  I have no doubt that the employees work hard, are dedicated, and try to provide loving care.  However, if the five-star, CMS Nursing Home Compare rating system is meaningful at all the outcomes for the five facilities at issue in this post belie Mr. Port’s claim of high-quality outcomes.

There is not a 4- or 5-star rating among the five facilities.  Two have a 1-star rating, two have a 2-star rating, and one has a 3-star rating.   The Riverbend facility’s 1-star rating is accompanied by a red hand, which indicates that some serious abuse and neglect has been identified in the facility.  This facility was also an early media “poster child” for COVID deaths.  The Kansas City Star and other local media outlets were on the large number of Riverbend COVID deaths early in the pandemic.  I was interviewed by the local FOX affiliate.  It was not lost on perceptive journalists that the facility had received a 1-star rating not long before the COVID outbreak.  Lack of infection control was a major issue in the inspection leading to the low CMS-NHC rating.

Message for Advocates

A publicly listed company like Ensign provides advocates with an opportunity to consider consolidated financial statements of parent corporations in conjunction with financial data reported to state agencies.  The importance of this cannot be underestimated.  LeadingAge and the AHCA/NCAL have a political narrative based on a false impression that the industry is comprised of struggling businesses barely avoiding bankruptcy.  Industry media such Skilled Nursing News and McKnight’s Senior Living reinforce this narrative, which is based on the pervasively faulty and misleading cost reports – not consolidated financial statements.

My colleagues and I at Tallgrass Economics have embarked on a project to compile cost reports for all Ensign facilities.  We are interested in the combined payouts to their own ancillary businesses such real estate, insurance, management services, etc. that are expensed on cost reports which affect each facility’s net income but funnels cash to Ensign Corporate.  LeadingAge and AHCA/NCAL are relying on a report compiled by the accounting firm Clifton-Larson-Allen (CLA), which is based solely on cost reports. CRs are a ludicrous source of financial data.  This post is an initial effort to spread that truth.