Orange County’s two publicly traded nursing home companies have continued to walk different paths on Wall Street this year.
Shares of Mission Viejo-based Ensign Group Inc. have climbed 36% since the start of the year to a recent market value of about $844 million.
The stock of Foothill Ranch-based Skilled Healthcare Group Inc., on the other hand, has fallen 22% since the beginning of the year to a market value of about $200 million.
Skilled and Ensign both reported disappointing second quarters, but “the key difference between the two is that the magnitude of the miss by Ensign was lesser and management explained on their earnings call why it shouldn’t be something that spills over to subsequent quarters,” said Robert Mains, an analyst who follows Ensign and Skilled for St. Louis-based Stifel, Nicolaus & Co. in an interview.
• Headquarters: Mission Viejo
• Business: Nursing homes, rehabilitative care
• Founded: 1999
• Ticker symbol: ENSG (Nasdaq)
• 2012 revenue: $824 million
• Recent earnings: $12.4 million for Q2
• Market value: About $844.2 million
• Notable: Shares up 36% since start of year
“We’ve reminded our listeners that our business can be a bit unpredictable—we use the word lumpy from quarter to quarter,” Ensign Chief Executive Christopher Christensen said on the earnings call. “The second quarter was just such a quarter and highlights why it is so difficult for us and those who follow us to predict the short-term results at any given point in time.”
Ensign said it expects a rebound, with “the lion’s share” of that coming in the fourth quarter, according to Christensen.
“This fourth-quarter surge is typical for us, as we almost always see our best occupancy and skilled mix increases, as well as the effective rate increases,” Christensen said.
“Skilled mix” is the total Medicare and non-Medicaid managed care patient revenue divided by total nursing home revenues in any given period.
Government reimbursements usually take effect on Oct. 1, the beginning of the fourth quarter.
Analyst Mains noted that “part of the damage at Ensign was a little bit self-imposed.”
He referred to eight acquisitions the company made during the second quarter, as well as negotiations on a litigation settlement with the U.S. Department of Justice and the subsequent signing of a corporate integrity agreement.
The litigation alleged overpayment to Ensign by federal healthcare programs.
Ensign and Skilled have different corporate strategies that are hard to compare. Ensign has had success through buying what are considered underperforming facilities and turning them around.
Ensign “suggested that they took their eye off the ball a little bit operationally, but now it’s back on,” Mains said. “In the nursing home industry, it’s usually tough to turn around an underperforming facility, and Ensign has cracked the code. They’ve been very successful.”
• Headquarters: Foothill Ranch
• Business: Nursing homes, rehabilitative care
• Ticker symbol: SKH (NYSE)
• 2012 revenue: $873 million
• Recent earnings: $1.5 million for Q2
• Market value: $200.1 million
• Notable: Shares down 22% since start of year
Skilled’s Challenges
Skilled gave a more cautious message during its earnings call.
“The message that Skilled gave is they faced some difficulties in the second quarter, and it’s going to take a while to turn the operations around,” Mains said.
Skilled is ready to face that challenge, said Roland Rapp, its general counsel, in an interview last week.
“Our theme has just been that we’re still focused on consummating [our U.S Department of Housing and Urban Development] financing and on operating the assets that we have in place and doing a better job of that,” he said.
The company is awaiting word from HUD on whether it will be allowed to borrow up to $250 million in low-interest loans.
Skilled previously said it was cutting an unspecified number of jobs in a plan to save $6 million a year. Rapp said some of those jobs came from its Foothill Ranch office but that they weren’t enough to report to California state officials.
Skilled also is dealing with changes in how it’s getting paid for care.
“We’re seeing more [very sick patients] coming in under managed care, less of them under a straight Medicare payer mix. That’s affecting two things … revenue, because we get lower rates from the managed care payers, but also length of stay. We’re finding that because our length of stay is going down, our overall occupancy is going down, even with the same number of patients,” Rapp said.
Mains said Skilled’s model brings mixed results.
“Managed care payers … [there’s] always a tug of war with them,” he said. “They’ll give you volumes, but they want to nickel-and-dime on reimbursement.”
One thing the pair won’t have to deal with: Medicare cuts.
The Centers for Medicare and Medicaid Services will give nursing homes a 1.3% reimbursement hike starting Oct. 1.
The two are also expected to see gains from a pending payment increase from Medi-Cal, a state and federally funded health insurance program that covers longer stays for sicker patients.
