Monthly Archives: October 2022

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

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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@new.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.