We recently looked at how the 11.1 percent Medicare cuts from October 2011 affected top-3 U.S. SNF provider Kindred Healthcare. The short answer—probably not in the ways, or nearly to the extent, that you've read about in the press.
But what about other major providers? At least among big public SNF companies, the sky seems securely in place. Although all providers cite the challenges posed by the Medicare cuts, have most reported positive financial results and outlooks, some quite remarkable. Let's look at a few other financial filings for public SNF companies*:
Ensign Group (103 SNFs, based in Mission Viejo, California): Ensign opened its 2011 report citing the "unprecedented 11.1% reduction in Medicare rates to skilled nursing facilities," but that was in reference to its "better-than-expected operating results."
"The fourth quarter marked the most daunting challenge to Ensign's facility-centric leadership structure and operating model to date, and perhaps the best test of our flexibility, responsiveness and resilience that we will ever experience," said Ensign CEO Christopher Christensen.
Even with the calculated actual Medicare rate cut impact of 14% for Ensign (much higher than many SNFs likely encountered), facilities performed well. Christensen cited the fundamentals—improving census and skilled mix. "Our facilities were able to make up much of the loss in the form of increased skilled days, as our skilled mix continues to shift higher," he said. We'll say it again—the same things that made business sense for SNFs on Sept. 30, 2011 made sense on Oct. 1, 2011.
The strategy and performance has carried over into 2012, with Ensign reporting record financials in Q1 2012.
By the numbers for 2011:
- 2011 consolidated revenues up 16.7% to $758.3 million
- 2011 net income climbed 17.6% to $47.7 million
- Bullish on growth, acquiring six new SNFs in Q4
For Q1 2012:
- Record revenues of $202.2 million, up 10.5%
- Record EBITDA of $30.3 million, up 5.4% over Q4 2011 and an increase of 19.1% over Q4 2011
- Facility census was up 4.4% over Q1 2011 and by 1.7 percent over Q4 2011, too 83.6%, with Medicare days increasing by 3.6% over Q1 2011
National Healthcare Corporation (NHC, 75 SNFs, based in Murfreesboro, Tennessee): NHC seems to say only the minimum with its financial reporting, providing less management perspective than most of the other public SNFs. So we'll jump right to the numbers:
- Net income to shareholders up 25.8% to $55.4 million from $44 in 2010
- Annual operating revenues up 7.3% to $773 million from $723 million
- Q4 2011 0perating revenues increased 0.5% to $192 million over Q4 2010, with net income for shareholders increasing by 12.2% (adjusted to exclude a one-time asset recovery gain from Q4 2010)
Advocat/Diversicare (Est. 50 SNFs, based in Franklin, Tennessee): Advocat reports some interesting performance numbers, with its Medicare reimbursement rate increasing 11.9%, even with the 11.1% cuts effective October 1. That supports our analysis from last year that some providers could see average rates increase depending on case mix. "This rate increase is a direct reflection of our efforts to deliver high quality skilled nursing and rehabilitation services," said Advocat CEO Kelly Gill.
Some of the other numbers bear out strong top line growth for the company:
- Revenues increased 8.5% over 2010, from $290 million to $314.7 million
- Skilled census (Medicare and managed care) up 11.9% to 16.3% of total census
- Medicare Part B revenues up $2.1 million
Q4 2011 Highlights:
- Overall census up 17% over Q4 2010
- Revenue increased 3% over Q4 2010, to $77.8 million compared to $75.5 million
For Q1 2012, revenues were almost identical to Q1 2011, despite the Medicare cuts—$77.1 million.
Even with healthy revenue measures, Advocat reported modest net losses in Q4 2011 and Q1 2012. Interestingly, CEO Gill cites several reasons for the losses, primarily related to strategic growth investments in facility remodeling, marketing and sales, and EHR implementation. Gill does not identify Medicare rate cuts as a reason for the losses.
Skilled Healthcare Group (74 SNFs, based in Foothill Ranch, California): Chairman and CEO Boyd Hendrickson commended his company's ability to "focus on high quality patient care while navigating through dramatic changes to Medicare," noting that Q4 performance remained strong and that the company has "been able to see results from our mitigation efforts more rapidly than we expected."
- Revenue up 6% in 2011 to $869.7 million from $820.2 in 2010
- Adjusted EBITDA up 8.1% to $131.3 million from $121.5 million
- Skilled mix up 0.5% to 23.2 percent
Skilled Healthcare Group did report overall losses, but similarly to Kindred, those losses were due to a one-time charge for impaired assets of about $270 million.
So what does all this mean? Clearly, many major SNF providers are thriving, not just surviving, in the face of 11.1% Medicare cuts. Other nursing homes can emerge from self-imposed retreat from strategic projects and investments and start to reconsider the things they may have put on hold in September 2011. We close with links to the five recommendations from the "11.1% Survival Guide for SNFs," perhaps more relevant now than when we first posted them back in October 2011:
- Arm Yourself with the Right Tools for Battle: Outmaneuver Your Competitors While They Stand Still
- Know Your Situation and Surroundings: Capture Business Intelligence to Support Smarter—And Bolder—Strategies
- Master the Mix: Optimize Your Payer Mix—It’s More Important Than Ever
- Replenish Your Resources: Focus on Generating Revenue to Overcome Reimbursement Cuts
- Choose Fight Over Flight: Stay On Course with Sound Strategies, Especially for Sales and Marketing
*We note here that our part 1 analysis of Kindred required considerable research to dig up and sort out the details of its 2011 financial filings. For this follow up post, we give a hat tip to the group "Families for Better Care," which recently published a summary of 2011 and Q4 2011 financial results for large public SNF companies, which we used as a starting point. We also thank the group for giving us an idea for a follow up post—Can profitable SNFs provide top quality care? (Spoiler: Our answer is "Yes.")