According to the Wall Street Journal, Most of the COVID-Related Death in Nursing Homes Was Preventable

By

Dave Kingsley

The best article to date on the COVID pandemic in long-term care facilities appeared this morning in the Wall Street Journal (Anna Wilde Mathews, Jason Douglas, Jon Kamp, and Dasi Yoon, “Covid-19 Took Deadly Aim At World’s Nursing Homes,” https://www.wsj.com/articles/covid-19-stalked-nursing-homes-around-the-world-11609436215?mod=searchresults_pos1&page=1). It is not another emotional story of some scandalous facility – the kind of stories we’ve had in the United States for 70 years. Rather it discusses the catastrophe in the broader context of system failure.

I believe the article could have gone further in its unmentioned but more or less implied critique of the various subsystems of the overall system, e.g. the industry, regulators, aging enterprises such as AARP, and legislators. These mutually reinforcing subsystems were not singled out for the type of scathing criticism they deserve. That’s a problem and weakness in the reporting. Nevertheless, the article was clear that most of the 120,000 estimated deaths was preventable.

The cross cultural comparison presented by the authors cited a study in the Journal of Post-Acute and Long-Term Medicine, in which a dozen member countries of the Organization for Economic Cooperation & Development were studied and compared. Not surprisingly, COVID-19 deaths were concentrated in long-term care facilities across the world. But some countries – mostly Asian countries – greatly reduced the effects of the scourge in their long-term care facilities.

As stated in the article:

The devastating toll wasn’t inevitable. Countries such as South Korea managed to limit the deaths among nursing home residents by avoiding widespread community outbreaks and moving quickly to prevent infections from spreading inside the facilities. Even as it faces a recent surge of Covid-19 cases, the entire east Asian nation has still reported only about 70 long-term care deaths.

Dr. Samir Sinha, Director of health policy and research and the National co-chair of the National institute of Aging said “We left the barn door open.” The authors continued to point out that most nations failed – especially the U.S. – in taking precautions and reacting slowly. It was well-known that infectious diseases are a significant threat to patients in long-term care facilities.

As I indicated, this article has its weakness by not focusing heavily on the industry’s gross negligence (by placing investors over stakeholders), or on lax regulation of the Center for Medicare and Medicaid Services and the various state agencies that appeared to be protecting and carrying water for the industry. Furthermore, the authors misrepresented the Trump Administration’s COVID in Nursing Homes Commission by stating that “it called for a more muscular response, including greater help for nursing homes with staffing, testing, and protective gear.” In fact, the Commission was a whitewash of the industry’s negligence and used by the Trump Administration as propaganda. Seema Verma issued a press release claiming it validated the great job done by the Administration.

Although the WSJ article was apparently not a call for an independent commission to determine why 120,000 mostly preventable deaths occurred, it should be a bit of help in motivating the public, legislators, and advocates to call for such an entity. The death of so many patients in long-term care is one of the greatest medical catastrophes in U.S. history. To not hold responsible parties accountable will present a grave danger to elderly and disabled patients in long-term care institutions.

Who are the major REITs in the Nursing Home Industry?

By

Dave Kingsley

According to U.S. World & Reports the following five REITs are recommended as the best “health care REIT” investments for a retirement portfolio: Sabra, Welltower, VENTAS, National Health Investors, and The Long-Term Care ETF (https://money.usnews.com/investing/dividends/articles/best-health-care-reits-for-a-retirement-portfolio).   Some of the properties currently owned by these entities were picked up when private equity firms sold off properties from chains they bought out such as HCR Manor Care (taken over by The Carlyle Group) or Genesis (taken over by Formation Capital).

The five REITs listed by USN&WR are publicly traded; hence, their filings with the SEC (10-K, 10-Q, and Proxy statement) are available and provide a picture of their financial performances. I will be tracking these from quarter to quarter and from fiscal year to fiscal year.

VENTAS

Ventas stated in its third quarter 10-Q that as of September 30, it “owned or managed through unconsolidated joint ventures approximately 1200 properties (including properties held for sale), consisting of senior housing communities, medical office buildings (MOBs), research and innovation centers, inpatient rehabilitation facilities (IRFs) and long-term acute care facilities (LTACs).”

The Ventas 10-Q report also suggests that their revenues will equal or exceed 2019 revenues.  As of September 30, revenues were $2.7 billion – total 2019 revenue was $2.9 billion.  Total stockholder equity as of the end of the third quarter was $10.3 billion.  On their cash flow statement, they indicate net cash from operating activities of $1.2 billion.

COVID Relief Funds

The company has received a considerable amount of government assistance during the current COVID pandemic. They indicate that CARES Act and the Paycheck Protection Program and Health Care Enhancement Act distributions under Phase II “are expected to equal 2% of annual revenues from patient care, and to benefit the assisted living communities in the Company’s senior living operating business, as well as it NNN senior housing tenants.”

They indicate that they have applied for “approximately $35 million in grants under Phase II of the Provider Relief Fund on behalf of the assisted living communities in our senior living business.” Furthermore, they state that “substantially all” of their tenants with triple-net leases (NNN) applied for funding under Phase II.

Real Estate Investment Trusts are Among the Biggest Owners and Managers of Nursing Home Facilities.

By

Dave Kingsley

In public discourse about the damage wrought by private equity firms in the long-term care system, real estate investment trusts (REITs) have unfortunately been overlooked. REITs specializing in medical care facilities – including long-term care properties – are heavily subsidized by federal and state governments through tax codes, guaranteed revenue, and various supplemental payments from CMS. During the COVID tragedy, they have received funding from the CARES Act and other supplemental funds from CMS.

As pass through entities, they pay no corporate income taxes.  They are, however, required to distribute a specific percentage of their earnings to shareholders who pay capital gains taxes. These are significant tax expenditures and subsidies.

Other important features of REITs with a specialization in long-term care are: (1) they have more than a tenant-landlord relationship with their tenants/operators, i.e., they can exercise managerial control over and serve on boards of their operators, (2) their leases are “triple net” (NNN), which means tenants pay insurance, taxes, and maintenance on the property, or even “absolute net,” in which tenants pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance, and capital expenditures.

Along with private equity and other ownership structures, REITs play a major role in the financialized, extractive processes dominating the long-term care industry.  In other words, the mission of these entities is to extract as much value as possible from the business with as little reinvestment as possible in services to stakeholders.

As this country assesses the underlying causes of the COVID catastrophe, activists, advocates, and scholars must insist on transparency and disclosure of details regarding contractual relationships between REITs and operators, but also between networks of LLCs owned by holding companies, private equity firms, or other legal ownership structures. We need to empirically establish the actual level of extraction versus the appropriate level of extraction.

AARP’s Defense of the Nursing Home Industry is Disgraceful

By

Dave Kingsley

The AARP is defending the indefensible.

Over 100,000 people in the care of nursing home corporations have succumbed to the COVID virus. Perhaps 150,000 have died of COVID in nursing homes – we don’t really know. Furthermore, we don’t know how many patients and employees who recovered from the disease will have life-long medical problems. This is one of the largest medical tragedies in U.S. history. Instead of demanding an investigation into the underlying management failure resulting in illnesses and death in long-term care facilities, the AARP is carrying water for the industry.

The AARP’s report on the “crisis” – written by a business writer – is better propaganda than real estate, finance, and nursing home lobbyists could hope for. Instead of demanding to know how the COVID tragedy could have happened, AARP commissioned Harris Meyer, a business journalist, to write a report regarding the nursing home industry’s performance in the COVID pandemic.  The report, “Nursing Homes’ Flawed Business Model Worsens COVIC Crisis” was posted on the AARP website (https://www.aarp.org/caregiving/health/info-2020/covid-19-nursing-homes-failing-business-model.html).

The AARP & Harris Meyer do not Understand the Nursing Home Industry

Meyer claims that the nursing home business is beset with a “flawed business model,” which in his view really isn’t the industry’s fault. As an explanation of the long-term care business, he provides nothing more than gibberish. I addressed some of the finance nonsense in Meyer’s report in a recent post (December 27th). He obviously doesn’t understand the industry and most of his claims in the article are not worth a comment. For instance, he claims that nursing homes “had an operating profit margin of negative 3 percent on patients paid for by Medicaid and other non-Medicare sources.”

Meyer doesn’t say where he found that information. Most nursing homes corporations are privately held and keep their financials close to the vest. Furthermore, he doesn’t indicate if he is referring to a mean or a median. Without a standard deviation and more information about the distribution of data on which a mean is based, an arithmetic average is meaningless. Without data by quartiles and a box plot to demonstrate distribution of data across each quartile, a median is nonsensical.

The Long-term Care Industry Devalues Human Life

There is so much about AARP’s whitewash that could be discussed, but suffice it to say that it is an embarrassment and should be grounds for an apology to the elderly and disabled people of America. The death and suffering of so many long-term care patients is simply due to the devaluation of the lives of disabled and elderly Americans in a system returning hefty value to investors at the expense of humane medical care.

The AARP is Making Excuses for the Nursing Home Industry and Misleading the Public

By:

Dave Kingsley

A PUZZLING REPORT COMING FROM AN ADVOCACY ORGANIZATION

The AARP commissioned Harris Meyer, a business journalist, to write a report regarding the nursing home industry’s response to COVID.  The report,Nursing Homes’ Flawed Business Model Worsens COVID Crisis” was posted on the AARP website (https://www.aarp.org/caregiving/health/info-2020/covid-19-nursing-homes-failing-business-model.html).

The advocacy work of the AARP during the COVID pandemic has been less than stellar. It will take more than one blog post to call out the AARP for a report that minimizes industry negligence and the size and scope of the COVID tragedy in U.S. home nursing homes. This is the first one.

 

The title of Meyer’s report might lead one to believe that the AARP is criticizing the industry and advocating for patients because of a “flawed business model,” which might be interpreted by ordinary taxpayers and stakeholders as “greed.”  Nothing could be further from the constructed reality presented in the report.  It is a delicate attempt to “carry water” for an industry that failed to protect patients entrusted to its care.

 

 By reducing the COVID tragedy in nursing homes to his perception of a “flawed business model,” and inadequate Medicaid reimbursement, Meyer gives more legs to a false narrative: nursing home corporations aren’t paid enough for providing the care elderly patients need and deserve. The flawed business model as he sees it has been imposed on corporations. That is untrue and unrelated to reality.

 

The report is full of misinformation and fails to address the dominance of finance and real estate driving the legal and financial structure and functioning of the nursing home system while Medical care is incidental.  Meyer even absurdly compares the daily Medicaid reimbursement rate to daily hotel rates of $200.  I know of no person, having checked into a hotel, was told they would be sharing a room with a stranger paying the same rate.

 

AARP – OSTENSIBLY AN ADVOCACY GROUP – IS TAKING ON A DEFENSE OF A NEGLIGENT INDUSTRY, WHICH NEEDS TO BE HELD ACCOUNTABLE

Meyer begins his article by taking the grossly negligent industry off the hook:

“It’s tempting to heap blame on the owners of America’s nursing homes—to argue that the pursuit of profits led to poor care and so many coronavirus-related deaths.” He claims that “The reality, however, is more complex.” He then makes a contradictory and untrue assertion: “Clearly most operators reacted to the pandemic as best they could. But what I found was that the industry’s complex and murky financial structure fails to safeguard the health of residents and staff.”

WHO IS RESPONSIBLE FOR THE “MURKY FINANCIAL STRUCTURE?”

Special interests representing real estate and finance are responsible for legislation that rewards high net worth individuals and institutional investors seeking shelter from the IRS and return on investment in medical care funded by federal and state governments.  Tax expenditures such as accelerated depreciation allowances, carried interest, pass through entities, interest deductions, and so on infuse cash into nursing home corporations that are above and beyond Medicaid/Medicare/Private Pay reimbursements.  There is no other industry rewarded as well by the tax codes as is the real estate industry.

GENESIS CORPORATION IS HARDLY AN EXEMPLAR FOR NURSING HOME CORPORATIONS

To determine how well corporations – paid to care for medically fragile and vulnerable patients – fulfilled their responsibilities, it is important to objectively examine evidence available from publicly listed corporations, but it is even more important to penetrate the opaque financial information behind the nursing home system’s veil of secrecy.  I have reported some of my examination in a recent post (e.g., on December 17, 2020 regarding The Ensign Group – a publicly traded company).  The ENSG has had rather robust earnings during the past three quarters compared to the same three quarters of 2019.

What Meyer doesn’t do is explain much about the financial structure he blames for (and what he minimizes as) the “COVID crisis” – one of the greatest medical tragedies in U.S. history. He uses the failing Genesis Healthcare Corporation as an exemplar of the industry.  Genesis, founded in the 1980s, grew into the largest chain of long-term care facilities in the U.S.  It was taken over – raided – by Formation Capital in 2007 and basically looted.  Formation sold off the property to Welltower – a player in the nursing home industry and publicly traded real estate investment trust (REIT) with over $4 billion in revenues.

The facilities were leased back to Genesis.  Triple net leases (tenant pays for maintenance, taxes, and insurance) are standard in the long-term care industry.  Meyer doesn’t understand that the variety of business models in the industry are conscious decisions of investors – they are not something over which corporate executives and investors have no control.  They choose how to structure their corporations, which is mostly for maximum extraction at the expense of care.

Genesis is basically a zombie company; its stock is practically worthless.  Here is what Welltower stated in their third quarter report:

“Genesis Healthcare Update As a result of Genesis Healthcare noting substantial doubt as to their ability to continue as a going concern we have written off all existing straight-line rent receivable balances and revised our method of revenue recognition to a cash-basis accounting method from a straight-line accounting method, effective July 1, 2020. Genesis Healthcare is current on all obligations to Welltower through October.”

MEDIAN NET OPERATOR EARNINGS ARE MISLEADING

Meyer cites a MedPAC report indicating a “operating profit margin of negative 3 percent on patients paid for by Medicaid and other non-Medicare sources.” This is a nonsensical statement.    Operators are at the bottom of the food chain in the nursing home system.  Much of what they are expensing is revenue that flows up the chain.  In the next post, I will discuss “net earnings” versus “earnings before interest, taxes, depreciation, and amortization” or “EBITDA.”  A financial metric that provides a much better picture of financial performance.

Also, I will be discussing a report paid for by the industry and produced by the major accounting firm Clifton, Larson, Allen (CLA).  This report also misleads the public and is used by the industry in its hardship pleas, which should be taken with a big grain of salt. Nevertheless, it contradicts and undermines Meyer’s report.

Poverty is Profitable for High-Net-Worth-Individuals: The Great Land Grab in African American Neighborhoods On the East Side of Kansas City, MO

By:

Dave Kingsley

The Chestnut Street Project

This is the first in a series of posts about the “Chestnut Street Project:” a group of citizens attempting to reclaim an African American neighborhood on the East side of Kansas City, MO. As part of the project, members of the group have undertaken research into residential property ownership in the area – neighborhoods abandoned and neglected by city government.  Property records reveal that thousands of homes are owned by either investors or the Kansas City Land Bank. 

The activists have set up a center of operations in a rehabbed house on the 3800 block of Chestnut Ave (see pictures below). The 32 houses on the block are for the most part in a state of abandonment and deterioration.  A few homeowners still living on the block and in the neighborhood have made valiant efforts to maintain their homes while investors and the Land Bank neglect property which devalues all homes in the area.

What’s Ghetto Property Worth to Investors?

Why would limited liability corporations (LLCs), private equity firms, real estate investment trusts (REITs) and other entities invest in houses surrounded by vacant and/or deteriorating property in a neighborhood with high levels of poverty and few city amenities?  High net worth individuals benefit in several ways from investing in dilapidated ghetto property.  Given that wealthy investors tend to prioritize sheltering income from the IRS, rental property provides tax advantages in addition to revenue.  For instance, residential homeowners living in their homes cannot take depreciation allowances in tax codes, but landlords can.

Second, low-income tenants often qualify for Section 8 housing subsidies.  Hence, property that investors pick up very cheaply produces revenue from HUD that outpaces the market value of the property.  Over the past few decades, HUD and city housing agencies have allowed slum lords to neglect property while they collect hefty rents. For example, one house on Chestnut Ave was owned by an Australian retirement fund.  A family with several children lived in the home.  People were dumping trash in the right of way directly behind the house about which the city and owner did nothing (even though we incessantly called the city about the problems).  Polluted water was incessantly draining from a leak in the street next to the home where children played. The house was in disrepair and the yard overgrown.

Third, private equity firms and investors in general purchase property and make investments with other peoples’ money (OPM).  Interest can be deducted from taxes – along with other business expenses. 

Fourth, LLCs are pass through entities and do not pay corporate income taxes.  Investors pay capital gains taxes, which are lower than taxes paid by many wage and salaried employees.  Furthermore, capital gains taxes are often lowered further by other sheltering devices such as family trusts.

Two private equity firms have each bought hundreds of homes from the Land Bank, rehabbed them for little cost, and moved tenants in.  This is a form of what one could call internal colonialism: out of state and out of country financial firms expropriate African American land, extract value from that land, and put little to no resources back into the neighborhoods.

Future posts will discuss the history of apartheid in Kansas City, the destruction of viable African American neighborhoods by federal, state, and city policy, and how ongoing city politics related to economic development is continuing to rob African American citizens of the wealth they have been able accumulate.

Small home at 3811 Chestnut Street – Rehabbed Under the Leadership of Ester Holzendorf
Home Owned by the Kansas City Landbank
Home Owned by an Elderly Lady – One Block from the Deteriorating Home Owned by the Landbank in the Previous Picture

The Economic System Has Shifted under our Feet and Has Changed the Nature of Every Institution of Society from Long-term Care to Corrections.

By:

Dave Kingsley

Here are some questions to ponder: Why would the Family Office of a Billionaire be a major investor in a nursing home located in the tiny Southeastern Kansas town of Cherryvale?   Why would TIAA-CREF – a teachers, insurance, and annuity program – be the biggest owner of land in the Mississippi/Arkansas Delta?  Why would the Harvard Endowment Fund buy up forest land in Europe? 

The answer to each of these questions is that the U.S. economic system has undergone radical change in the past fifty years.  Indeed, the economic ground has shifted under our feet.  This shift has been tectonic, global, and influences every institution of society.  Much of government responsibility for the “general welfare” has been privatized and provides opportunities for investors with an immense amount of accumulated capital.

 Regardless of the theory of political economy to which one subscribes, throughout the past fifty years, monetary, management, and regulatory theories have driven a merger of government and business into a wild, wild west of unfettered capitalism.  This corporatocracy has resulted in massive pools of wealth in the hands of ultra-high net worth individuals, corporations, and institutions such as universities and sovereign wealth, and retirement funds.

Like water naturally seeks its own level, capital flows toward return on investment. In addition to a high return, investors seek protection from taxes, creditors, and all forms of liability.  Many state legislatures have accommodated that tendency by enacting laws for protecting and hiding assets.

Among other things, these massive pools of capital have resulted in monetization of every societal issue from crime to end of life care. Indeed, as the previous post indicates, even housing in neglected, abandoned, and deteriorating neighborhoods have been attracting private equity funds and institutional investors.

 Revenue producing real estate has become central to the institutionalization of human commodities such as frail elders, prisoners, soldiers, and troubled youth. Government guaranteed revenues are transferred opaquely from middle- and low-income strata of society through captured agencies, and secretive networks of shell companies to family offices, holding companies, Real Estate Investment Trusts, and other investment vehicles.

It is important for those of us advocating for economic justice to focus on how the economic system works and what it portends for the future of institutionalized Americans and the future of democracy.  The COVID pandemic swept through long-term care facilities, meat packing plants, and prisons because in the current economic system management theory accords priority to investors over stakeholders.  Patients, customers, inmates, students, and communities are not the priority of management – finance and extraction of value for shareholders is the top priority of executives, and this aided and abetted by government.

Avocado Post-Acute Care, San Diego, CA & the Jacob Graff Living Trust

By:

Dave Kingsley

Avocado Post-Acute Care in San Diego is a facility owned by a limited partnership – Eldorado Care Center LP. This facility came to the attention of the media because of a large number of COVID deaths, and a rating of 1 on the CMS Nursing Home Compare website.  I was contacted by a reporter for a local PBS station. She was attempting to trace ownership of the facility.

The “indirect ownership interest” (100%) is listed by CMS as the Jacob Graff Living Trust.  Living trusts are set up by wealthy individuals for managing and protecting their assets – usually a family’s wealth.  I won’t get into the weeds on trusts in this post.  Suffice it to say that trusts are financial vehicles for keeping wealth away from the IRS – especially from collection of inheritance taxes.  This is a problem because these types of financial machinations are fueling wealth maldistribution.  This is the reason I have been advising advocacy organizations to add attorneys and financiers who understand corporate ownership structuring and finance to their boards.

I checked the San Diego County property database and discovered that the building was owned by an LLC. Property records won’t reveal the owner of an LLC – neither will secretary of state business search databases. However, addresses on the documents and Jacob Graff’s signatures revealed that his real estate business is the owner.  The market value of the property was assessed at $11 million.  Indeed, the long-term care business is far more about real estate than it is long-term care.  This property LLC most certainly has a “triple net lease” with Eldorado Care Center LP.  Under a triple net lease, the leasees pay taxes, maintenance, and insurance.

Continued searching of records regarding Jacob Graff revealed that he owned four other long-term care facilities in California – all of which were under the umbrella of a real estate property management firm in Beverly Hills, California.  Furthermore, on February 14, 2013, McKnight’s reported this: “A federal jury recently assessed penalties of 28.1 million against the former owner of an Illinois nursing home on charges that include Medicare & Medicaid fraud.”

According to the article, the defendant was Jacob Graff.  Apparently, this case arose from two nurses who “blew the whistle” for substandard care and fraudulent billing.  The nurses were fired to “silence their complaints.” 

The facility, Momence Meadows Nursing Center (MMNC) in Kankakee, IL was fined more than $19 million for “filing more than 1,700 false or fraudulent claims to state and federal agencies.  “Additional fines were levied because the “worthless services” provided by the nursing home resulted in the government losing more than $3 million.”

How many owners like Jacob Graff can we find among owners of the 15,500 long-term care facilities in the U.S.? That is still unknown.  We need to determine that.  I keep discovering them as I search through murky ownership structures in the nursing home business. 

The Dominant Purpose of Long-term Care in America is Finance – not Health Care

By:

Dave Kingsley

Macroeconomic Trends & Long-term Care Ownership

The long-term care industry reflects macroeconomic trends of the past half century.  With excess liquidity in the capital markets and increasing concentration of wealth in the hands of a small number of ultra-high net worth individuals, asset protection and finance have become major, if not dominant, purposes of corporate management.

An analysis of ownership structures in the nursing home business suggests that a large proportion of investment is driven by protection of personal/family, institutional, and corporate wealth. In the past few decades, state legislatures have passed legislation designed to provide secrecy and shelter from taxes, liability, and creditors.  Wealthy individuals avail themselves of these laws to keep their wealth intact and safe from the IRS and creditors during their lifetime and after their death.  Because of recent legislation, for example, South Dakota collects a large amount of fees for setting up the most protective of asset protection trusts.

States such as Nevada, Delaware, and Alaska are the most beneficial places to incorporate businesses and the shell companies (shell corporations have no offices and no employees) useful for hiding assets and keeping tax collectors and creditors at bay.  Long term care corporation ownership is mostly designed around processing funds through a network of Limited Liability corporations – many of which are shell companies.

Low- and middle-income Americans expend all their assets in long-term care before they find themselves in a position to ask for “welfare medicine,” i.e., Medicaid.   These are assets they would otherwise leave to their heirs. Personal and government funds are extracted by investors who use the tax codes to avoid meeting their obligations to support the public interest and repay the society enriching them.  A dollar in real estate related and other forms of tax avoidance is worth more than a dollar in operator profit.  Extraction from the mass of wage and salary workers by the wealthy exacerbates maldistribution and becomes a feedback loop in which inequity becomes continuously worse.  

The essence of the long-term care industry is the parking of capital owned by ultra-high net worth individuals in networks of entities designed for maintenance and enhancement of individual and family wealth.  Various forms of trusts are set up to protect and grow individual and family wealth.

The Financial Performance of “Nursing Home” Corporations during the COVID Pandemic, Part I: The Ensign Group

By:

Dave Kingsley

Introduction

The long-term care industry is paid by federal and state governments to care for medically fragile patients. That is an awesome responsibility. Historically, the industry has failed to provide the level of quality expected in a wealthy, humane, democratic society.  But the irresponsibility and negligence of so-called “nursing home” corporations in the face of a deadly pandemic has resulted in a human tragedy of incomprehensible proportions. Let’s call what happened what it is: gross negligence.

The public needs to know about the providers who have failed the patients in their care.  Hence, with this post, I will commence a series of highlights of companies in the business.  These posts are designed to illustrate the variety of corporations structured as publicly listed corporations, family trusts, private equity firms, family offices, sole proprietorships, and real estate investment trusts (REITs). One purpose of this series is to demonstrate the wide variety of ownership structures.

Throughout the COVID pandemic, I have been interviewed by various journalists about facilities with egregious amounts of COVID infections and deaths.  One task that I assisted members of the press with was tracking down ownership, which is often opaque and somewhat difficult to determine.  Initially, I’m highlighting two of those facilities and their owners: (1) Riverbend in Kansas City, Kansas, owned by The Ensign Group (ENSG) and Avocado Acute Care in San Diego, California, owned by the Jacob Graff Family Trust. This first post pertains solely to The Ensign Group.

The Ensign Group & the Riverbend Post-Acute & Rehabilitation Center

Riverbend Post-Acute & Rehabilitation Center came to the attention of the Kansas City media early in the sweep of the COVID pandemic through long-term care facilities.  According to the Kansas City Star, thirty patients had died from COVID in the facility as early as April.  I was contacted by Fox4 television reporters working on a story about a notorious loss of life in the facility early in the pandemic.

I was interviewed on air about the industry in general, but at the time I was not that knowledgeable about Riverbend ownership.  However, it did not take long to pin down The Ensign Group (ENSG) as the ultimate owner, which is a “holding company” and one of a handful of publicly listed owners in the business.

With over 200 facilities, The ENSG is one of the major players in the long-term care industry.  Given that it wasn’t formed until 1999, it is a rather young company.  Nevertheless, its revenue recently surpassed $2 billion.  Furthermore, a review of its annual 10-K and quarterly 10-Q reports filed with the SEC suggests that it has had robust earnings per share, has accumulated several hundred million dollars in cash and equivalents, and has very little debt (debt to equity ratio is at .15 versus 1.45 for the industry) – a very good position to be in these days.

How is it doing in this pandemic?  According to its third quarter 2020 10-Q filing, revenue was $599,255,000 compared to same quarter of 2019, which was $512,109,000.  It is doing stunningly well.  The ENSG reported 3rd quarter long-term debt of $113,322,000 compared to $325,217,000 as of December 31, 2019.

…earnings per share for the quarter was $0.77, representing an increase of 97.4% over the prior year quarter and adjusted diluted earnings per share for the quarter was $0.78, an increase of 95.0% over the prior year quarter.


https://investor.ensigngroup.net/news-releases/news-release-details/ensign-group-reports-third-quarter-results

At last check today I noticed that ENSG stock today was listed at $74.37 per share – near an all-time high. Here is what the Forex website had to say about the stock:

We wrote about the Ensign Group (ENSG) back in September and stated that gains may be only starting. The premise for our bullishness was the fact that earnings were increasing significantly and the technicals were following suit. Well, this momentum continued in the third quarter as the company reported adjusted net income of $44 million on sales of just under $600 million. In fact, record earnings over the past few quarters have resulted in management increasing its 2020 guidance significantly. Updated guidance for this year comes in at $3.12 per share on sales of approximately $2.435 billion. The maintaining of the top-line numbers illustrates that margins continue to increase. Management expects to do $3.50 in earnings per share in 2021 which would be a 12% increase over this year if met.


https://www.forexabuzz.com/2020/12/ensign-group-market-continues-to-love-this-stock-nasdaqensg/

The annual 10-K reports and 10-Q filings are hundreds of pages of financial and other information. Suffice it to say that the ENSG has been an excellent investment. It is difficult to understand the lack of preparation by management for a pandemic they knew was coming. The 2020 proxy report indicates the CEO’s 2019 compensation was $6 million. Lobbyists for the industry will claim that providers are operating on a low margin, which is a lie and needs to be debunked by advocates. I suggest that advocates never buy the excuse that low quality and grossly neglectful care is caused by a provider’s financial hardship.

 I will conclude with this:  providers have received an immense injection of federal funds through the CARES act and other supplemental payments from the Center for Medicare & Medicaid Services.  No doubt the ENSG has taken advantage of the lending facility provided by the Federal Reserve and Treasury Department and has probably received some outright grants worth $millions.  It is not feasible at this time to sort out just how these programs have enhanced cash flow, but I will be working on this issue in the months ahead.