The Ensign Group Stock

The Ensign Group, Inc. (Ensign) provides skilled nursing, senior living and rehabilitative services, as well as other ancillary businesses (including mobile diagnostics and medical transportation), in 13 states.

As part of the company’s investment strategy, the company also acquires, leases and owns healthcare real estate to service the post-acute care continuum through acquisition and investment opportunities in healthcare properties. For the year ended December 31, 2023, the company generated approximately 96.0% of its revenue from its skilled nursing facilities. The remainder of the company’s revenue is primarily generated from its real estate properties, senior living services, and other ancillary services.

Operations

The company offers skilled nursing, senior living and rehabilitative care services through skilled nursing and senior living facilities. The company operates facilities under long-term lease arrangements. The company’s real estate portfolio includes owned real estate properties, which include facilities that are operated and managed by the company, some operations leased to and operated by third-party operators, and the Service Center's California location. Of the real estate operations leased to third-party operators, a senior living facility is located on the same real estate property as a skilled nursing facility that the company owns and operates.

To continue with the company’s growth strategy on its real estate portfolio, in January 2022, the company formed Standard Bearer. Standard Bearer owns and manages its real estate business. The REIT structure allows the company to better demonstrate the growing value of its owned real estate and provide the company with an efficient vehicle for future acquisitions of properties that could be operated by the company’s independent subsidiaries or other third parties. Standard Bearer elected to be taxed as a REIT, for the U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2022. The real estate portfolio in Standard Bearer consists of some of the company’s owned real estate properties. Standard Bearer owns the real estate of stand-alone skilled nursing facilities and campus operations. Of these additions, the skilled nursing facilities and a campus operation acquired are operated by the company's independent subsidiaries. The remaining campus operation is leased to a third-party operator.

Segments

The company has two reportable segments: Skilled Services, which includes the operation of skilled nursing facilities and rehabilitation therapy services; and Standard Bearer, which is consisted of select properties owned by the company through its captive REIT and leased to skilled nursing and senior living operations, including the company’s own independent subsidiaries and third-party operators.

The company also reports an ‘all other’ category that includes operating results from the company’s senior living operations, mobile diagnostics, transportation, other real estate and other ancillary operations.

Skilled Services

As of December 31, 2023, the company’s skilled nursing companies provided skilled nursing care at 286 operations, with 30,602 operational beds, in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin. The company provides short and long-term nursing care services for patients with chronic conditions, prolonged illness, and the elderly. The company’s residents are often high-acuity patients that come to its facilities to recover from strokes, cardiovascular and respiratory conditions, neurological conditions, joint replacements, and other muscular or skeletal disorders. The company uses interdisciplinary teams of experienced medical professionals to provide services prescribed by physicians. These medical professionals provide individualized comprehensive nursing care to the company’s short-stay and long-stay patients. Many of the company’s skilled nursing facilities are equipped to provide specialty care, such as on-site dialysis, ventilator care, cardiac and pulmonary management. The company also provides standard services, such as room and board, special nutritional programs, social services, recreational activities, entertainment, and other services. The company generates its skilled services revenue from Medicaid, Medicare, managed care, commercial insurance, and private pay.

Standard Bearer

The company engages in the acquisition and leasing of skilled nursing and senior living properties. The company generates rental revenue primarily by leasing post-acute care properties the company acquired to healthcare operators under triple-net lease arrangements, whereby the tenant is solely responsible for the costs related to the property, including property taxes, insurance and maintenance and repair costs, subject to certain exceptions. The company’s real estate portfolio within Standard Bearer is consisted of real estate properties located in Arizona, California, Colorado, Idaho, Kansas, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin. Of these properties, some are leased to the company’s independent subsidiaries and some are leased to operations wholly-owned and managed by third-party operators. Of the real estate operations leased to third-party operators, a senior living operation is located on the same real estate property as a skilled nursing facility that the company owns and operates.

Other

Revenue from the company’s senior living operations, mobile diagnostics, transportation, other real estate and other ancillary operations comprise approximately 4.2% of the company’s annual revenue.

Senior Living — The company has senior living units across 38 operations, of which 27 were located on the same site location as the company’s skilled nursing care operations. The company’s senior living communities located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Texas, Utah and Washington, provide residential accommodations, activities, meals, housekeeping and assistance in the activities of daily living to seniors who are independent or who require some support, but not the level of nursing care provided in a skilled nursing operation. The company’s independent living units are non-licensed independent living apartments in which residents are independent and require no support with the activities of daily living.

The company’s senior living operations comprise approximately 2.0% of its annual revenue. The company generates revenue at these units primarily from private pay sources, with a small portion derived from Medicaid or other state-specific programs. Specifically, during the year ended December 31, 2023, approximately 60.7% of the company’s senior living revenue was derived from private pay sources.

Ancillary — The company holds a majority membership interest of ancillary operations located in Arizona, California, Colorado, Idaho, Texas, Utah and Washington. The company has invested in and is exploring new business lines that are complementary to the company’s existing skilled services and senior living services. These new business lines consist of mobile ancillary services, including digital x-ray, ultrasound, electrocardiograms, sub-acute services, dialysis, respiratory, long-term care pharmacy and patient transportation to people in their homes or at long-term care facilities.

Revenue Sources

The company derives revenue primarily from the Medicaid and Medicare programs, managed care and commercial insurance payors and private pay patients. The majority of the company’s revenue is derived from skilled nursing, which is highly dependent upon the Medicaid and Medicare programs.

A brief overview of each of the company’s revenue sources is as follows:

Medicaid — Medicaid is a program financed by state funds and matching federal funds administered by the states and their political subdivisions, and often go by state-specific names, such as Medi-Cal in California and the Arizona Healthcare Cost Containment System in Arizona. Medicaid programs generally provide health benefits for qualifying individuals, and may supplement Medicare benefits for the disabled and for persons aged 65 and older meeting financial eligibility requirements. Medicaid reimbursement formulas are established by each state with the approval of the federal government in accordance with federal guidelines. Seniors who enter skilled nursing facilities as private pay clients can become eligible for Medicaid once they have substantially depleted their assets. Medicaid is generally the largest source of funding for most skilled nursing facilities.

Medicaid reimbursement varies from state to state and is based upon a number of different systems, including cost-based, prospective payment; case mixed adjusted payments and negotiated rate systems. Rates are subject to a state’s annual budgetary requirements and funding, statutory and regulatory changes and interpretations and rulings by individual state agencies and State Plan Amendments approved by CMS.

Medicaid typically covers patients that require standard room and board services and provides reimbursement rates that are generally lower than rates earned from other sources. The company monitors its payor mix to measure the level received from each payor across each of the company’s business units. The company intends to continue to focus on enhancing its care offerings to accommodate more high acuity patients.

Approximately 87.2% of the company’s Medicaid revenue comes from Arizona, California, Colorado, Texas, Utah and Washington.

Medicare — Medicare is a federal program that provides healthcare benefits to individuals who are 65 years of age or older or are disabled. To achieve and maintain Medicare certification, a skilled nursing facility must sign a Medicare provider agreement and meet the CMS ‘Conditions of Participation’ on an ongoing basis, as determined in periodic facility inspections or ‘surveys’ conducted primarily by the state licensing agency in the state where the facility is located. Medicare pays for inpatient skilled nursing facility services under the prospective payment system (PPS). Under PPS, facilities are paid a predetermined amount per patient, per day, for certain services. Medicare Part A skilled nursing facility coverage is limited to 100 days per episode of illness for those beneficiaries who require daily care following discharge from an acute care hospital.

For Medicare beneficiaries who qualify for the Medicare Part A coverage, rehabilitation services are included in the per diem payment. For beneficiaries who do not meet the coverage criteria for Part A services, rehabilitation services may qualify for the services to be provided under Medicare Part B.

Managed Care and Private Insurance — Managed care patients consist of individuals who are insured by certain third-party entities, or who are Medicare beneficiaries who have assigned their Medicare benefits to a senior managed care organization plan. Another type of insurance, long-term care insurance, is also becoming more available to consumers, but is not expected to contribute significantly to industry revenues in the near term.

Private and Other Payors — Private and other payors consist primarily of individuals, family members or other third parties who directly pay for the services the company provides.

Rental Revenue — Real estate rental revenue is generated by leasing post-acute care properties that the company acquired to healthcare operators under triple-net lease arrangements, whereby the tenant is solely responsible for the costs related to the property, including property taxes, insurance and maintenance and repair costs, subject to certain exceptions.

Reimbursement for Specific Services

Reimbursement for Skilled Services — Skilled nursing facility revenue is primarily derived from Medicaid, Medicare, managed care and private payors. The company’s skilled nursing operations provide Medicaid-covered services to eligible individuals consisting of nursing care, room and board and social services. In addition, states may, at their option, cover other services, such as physical, occupational and speech therapies.

Reimbursement for Rehabilitation Therapy Services — Rehabilitation therapy revenue is primarily received from private pay, managed care and Medicare for services provided at skilled nursing operations and senior living operations. The payments are based on negotiated patient per diem rates or a negotiated fee schedule based on the type of service rendered.

Reimbursement for Senior Living — Senior living facility revenue is primarily derived from private pay patients at rates the company established, with only a small portion of such revenue derived from state-specific programs, such as Medicaid.

Reimbursement for Other Ancillary Services — Other ancillary revenue, such as mobile diagnostics and medical transportation, is primarily derived from Medicare Part B, Medicaid, managed care and private payors at rates the company establishes based upon the services the company provides and market conditions in the area of operation.

Rental Revenue

Rental revenue from third-party rental property tenants — Standard Bearer's owned properties are leased pursuant to non-cancelable operating leases, generally with an initial term of 10 to 20 years. All of the leases for post-acute care healthcare properties contain renewal options. The leases provide for fixed minimum base rent during the initial and renewal periods. Standard Bearer's leases contain provisions for specified annual increases over the rents of the prior year and those increases are generally calculated based on the Consumer Price Index.

Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities. In addition, Standard Bearer's leases with third-parties are typically structured as master leases. The master leases consist of multiple leases, each with its own pool of properties, that have varying maturities and diversity in property geography.

If a lessee makes payments for taxes and insurance directly to a third-party on the company’s behalf, the company is required to exclude these payments from variable payments and from revenue recognition in the company’s consolidated statements of income. Otherwise, tenant reimbursements paid to the company for taxes and insurance are classified as additional rental revenue recognized by the company on a gross basis.

Rental revenue from the company’s independent subsidiaries — Rental revenue from the company’s independent subsidiaries is based on mutually agreed-upon base rents that are subject to change from time to time. Intercompany revenue is eliminated in consolidation, along with the corresponding intercompany rent expenses of the related healthcare facilities.

Growth Strategy

The company’s strategies are to increase mix of high acuity patients; focus on organic growth; and add new facilities and expand existing facilities.

An important part of the company’s business strategy is to continue to expand and diversify the company’s real estate portfolio through accretive acquisition and investment opportunities in healthcare properties. The company’s execution of this strategy hinges on the company’s ability to successfully identify, secure and consummate beneficial transactions.

Government Regulation

The company’s independent subsidiaries that provide healthcare services are subject to federal, state and local laws relating to, among other things, licensure, quality and adequacy of care, physical plant requirements, life safety, personnel and operating policies. In addition, these same subsidiaries are subject to federal and state laws that govern billing and reimbursement, relationships with vendors, business relationships with physicians and workplace protection for healthcare staff. Such laws include (but are not limited to) the Anti-Kickback Statute (AKS), the federal False Claims Act (FCA), the Stark Law and state corporate practice of medicine statutes.

The company is also subject to federal and state laws that regulate financial arrangement by and between healthcare providers, such as the federal and state anti-kickback laws, the Stark laws, and various state anti-referral laws.

Health care providers are also subject to laws and regulations enacted to protect the confidentiality of patient health information and patients' right to access such information. For example, HHS has issued rules pursuant to HIPAA, including the Health Information Technology for Economic and Clinical Health (HITECH) Act, which governs the company’s use and disclosure of protected health information of patients. The company and its independent subsidiaries have established policies and procedures to comply with HIPAA privacy and security requirements and the company’s independent subsidiaries have adopted and implemented HIPAA compliance plans, which comply with the HIPAA privacy and security regulations, which impose significant costs for ongoing compliance activities.

The company’s independent subsidiaries are also subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA.

The company’s independent subsidiaries must also comply with the ADA, and similar state and local laws to the extent that the facilities are ‘public accommodations’ as defined in those laws.

Trademark

Ensign is the company’s United States trademark.

History

The Ensign Group, Inc. was founded in 1999. The company was incorporated in 1999 in Delaware.