Q4 2019 Earnings Call
[music].
At this time I like to welcome everyone to the quarterly earnings Conference call.
All lines have been placed on mute to prevent any background noise.
The speakers remarks, there will be a question and answer session.
When I Tesco portion or an assumption superstar and then the number one or telephone keypad.
If you like to for your question press the pound key. Thank you Ms. Mayor you may begin your conference.
Good morning, and thank you for joining US today, we issued our earnings press release yesterday, you know so we'll be available in the Investor Relations section of our website a Genesis H.C.C. dotcom replay of this call will also be available on our website for one year.
Before we begin I would like to quickly review a few housekeeping matters.
Any forward looking statements made today are based on management's current expectations assumptions and beliefs about our business and the environment in which we operate these statements are subject to risks and uncertainties that could cause <unk> actual results to differ materially from those expressed or implied on surveyed all listeners should not place undue reliance on for.
Forward looking statements and are encouraged to review our FCC filings for a more complete discussion of factors that could impact our results.
Except as required by Federal Securities Law, Genesis healthcare and its affiliates do not undertake to publicly update or revise any forward looking statements or changes that are ones that arise as result from new information future events changing circumstances or for any other reasons. In addition, any operationally mentioned today's operated by its.
<unk> operating subsidiary has its own management employees in assets references to the consolidated company as I said [laughter] activities as well as the use of the terms, we ask our and similar verbiage are not meant to imply that Genesis healthcare has direct operating assets employees or revenue or that any of the various operations are offered.
By the same entity, our discussion today and the information in our earnings release in our public filings include references to adjusted EBITDAR.
EBITDA adjusted EBITDA, which are non-GAAP financial measures. We believe the presentation of non-GAAP financial measures provides useful information to investors regarding our results because these financial measures are useful for trending analyzing and benchmarking the performance and value of our business [laughter], such non-GAAP financial measures should not be.
Relied upon at the exclusion of GAAP financial measure <unk>.
Please refer to the company's reasons for non-GAAP financial disclosures and its GAAP to non-GAAP reconciliations contained in today's earnings release, it with that I'll turn the call over to George Hager CEO Genesis healthcare.
Thank you already.
Good morning, and thank you joining us today.
As a number of members.
Well the Genesis senior management team on the call today.
Including Dr., Richard flight for Genesis healthcare as Chief Medical Officer, Dr., Joanne Reifsnyder Genesis Chief Nursing Officer.
Our goal is palm beach to Oreo, our Chief Financial Officer.
Before I start todays earnings call.
Turning the call over to Dr. flavor.
Award shared the latest on cautions we're taking.
Right and prepare our centers, where the Corona virus.
Dark fiber.
Thank you George and good morning.
With the United States experiencing person to person and community spread in many areas of rubber country. We wanted to share with you the preparations and precautions, we're taking within genesis to reduce the likelihood of the virus spreading to our abilities.
It goes without saying that the safety and well being of our patients residence is our highest priority.
Since the outbreak began in China.
I agree meeting regularly with doctors are went right.
Along with our senior management any clinical leadership teams to address current concerns about an outbreak in the quarter virus Cobot 19.
In the United States and the possibility of the virus impacting our center.
Yes, this executives and subject matter experts out a bit in regular what's consultation and collaboration with the CDC.
The American Health Care Association, and local public health officials.
Our executive leadership team.
Reviewing activities a baby my own this is synthesizing federal and local gardens and publishing garden astute centimeters.
We are currently conducting company wide leader calls twice weekly or more as a means to provide updates reinforced calls to action provide specific gardens and answer questions.
Some of the specific actions we've taken are as follows.
We have a seller internal email hotlines monitored in real time to answer questions and to escalate or neatly resolved concerns.
We have educated our employees on Coke 19, and our revised travel and sick policies.
I've or Corona virus epidemic continues to spread throughout the country. All of our affiliated centers will be restricting visitation to exceptional circumstances, such as end of life situations.
Arrangements are well underway to provide each center with mechanisms to facilitate residential family member video conferencing capabilities.
We realized these measures will be challenging for patients resident and families that are doing everything we tend to support them through this very difficult crisis.
Upon entry to each facility, we've enhanced employee and have patient screening and precautions.
And all are now entered into a single well mark insurance with appropriate self monitoring.
Finally, all centers are receiving it off hand, sanitizer dispatchers and products have one dispenser in each patient room.
With all that said.
This time, we have a single confirmed case of Coca 19 in one of our 387 centers.
Rest assured we're working diligently to minimize any potential spread but we're also preparing to any more of our facilities experienced the corona virus.
Be happy to answer your questions together today's call and I'd like to now I'll turn the call back to George.
Thank you Dr. Piper.
John It's it's a truly fortunate to have Dr. flight for Dr. Reifsnyder.
Leaving our clinical operations focused on protecting our patients.
Our residents and our caregivers that's the bed side.
During this time, the unprecedented risk and exposure.
Even though the Corona borrowers pandemic is our highest priority.
And is currently consuming significant resources.
Hard to effectively manage the impending risk.
I would like to spend a few minutes, reflecting on our achievements in 2019.
Over the last year.
We've made significant headway.
Many of our strategic initiatives.
Well the posted two industry as a whole continues to improve.
During the year.
We sold our fifth consecutive quarter of occupancy growth.
The reimbursement rate environment continues to improve.
We successfully transitioned to PDP.
We have effectively manage cost while improving outcomes.
At the same time Weve remained focused on our strategic objectives.
Shed non core assets.
While increasing facility ownership and paying down debt.
2019.
Turned out to be a year or could you reposition agenda for Genesis.
And I'm happy to report that the strategic changes we have made continued to generate positive result.
Specifically.
Our EBITDAR margins grew 80 basis points in Q4 2019.
That's compared to the same quarter in the prior year.
Occupancy grew for the fifth consecutive quarter.
Same store growth of 30 basis points in the fourth quarter 2019, as compared to the same quarter in the prior year.
We divested exited or closed 44 noncore assets over the course of the year.
And exited the operations of of an additional five facilities, thus far in 20 Twond.
We paid down approximately $140 million the debt.
We completed to create a partnership.
The set the stage for future real estate ownership of 34 facilities.
And we're on track to own well have the right through loan 35% of our real estate by the end of 2020.
And we recognized $9 billion of net income.
Through our LTC Ace Fios participation in the Medicare shared savings program.
In addition to facilities divestitures.
We've been pursuing creative joint venture structures.
Designed to combine strong local operating experience.
Within our industry, leading national platform that provides the benefits of scale.
Infrastructure.
An innovative clinical programs.
In that vein.
And as previously announced effective February Onest 2020.
Dennis is sold the real estate and leasehold interest.
Of 19 facilities located in California, Washington in Nevada into a newly formed joint venture.
New Gen help LLC will operate these facilities under a long term management agreement.
And we will retain a 50% interest in the facilities.
This model, although recently formed.
It's showing early success.
Operationally and financially.
Lastly, I would like to discuss our continued participation in the Medicare shared savings program.
As SP.
Through our LTC a CEO.
Let's say Seo focuses on improving the quality of care.
For our long term resin.
And generating health care efficiencies already being demanded by the healthcare market.
The presents a truly unique opportunity for Genesis and non Genesis facilities.
You participate in the evolution of a value based reimbursement system.
A system that promotes patient outcome and cost efficiency.
Not volume.
In December 2019.
We announced that our LTC a CEO welcome nearly 200, new unaffiliated long term care facilities.
Moreover, through this initiative.
LTC, a CEO has contracted with more than 75 primary care providers.
Even residents of these facilities.
Yes, the LTC Hcl.
Designed to pass along no downside risk.
Through the facilities, where the participating primary care providers.
And requires no capital outlay order to participate.
LTC Hcl expects to attribute approximately 3000 additional lives by the end of 2020.
Associated with these new facilities and primary care providers.
LTC Hzo presents unique.
And meaningful opportunity.
Both in the future.
In conclusion despite facing.
Near term challenges regarding the clone of Corona virus pin debit.
The outlook for 2020 continues to improve.
I remain hopeful.
An optimistic the Genesis will will achieve improved patient outcome.
As well as improved operational and financial results.
With that I'll now turn the call over to Tom the material.
Thank you George good morning, everyone.
My comments today will focus on fourth quarter operating results and trends as well as PDP EM.
Starting with the topline.
Revenue in Fourq, you 19 of $1.14 billion declined $51 million from Fourq to 18.
Of this 51 million dollar decline in revenue.
Million dollars is attributed to the impact of divestitures net of acquisitions and $14 million is principally attributed to lower revenue in our rehab services segment, driven by planned third party contract pricing adjustments in connection with PD pm.
These revenue declines were offset by $53 million were 4.8% of same store revenue growth principally in our inpatient services segment.
This marks the fifth consecutive quarter of organic same store revenue growth in our inpatient business and is the highest level of growth over the five quarter period.
This growth was led by favorable reimbursement rates across all payers, which I will drill further into later in the discussion.
Adjusted EBIT door of $146.9 million in Fourq, you 19 increased $2.8 million from Fourq to 18.
This growth occurred despite $6.7 million of lost earnings from divestitures net of acquisitions.
After taking this into account same store adjusted EBIT door in Fourq 19 grew $9.5 million were 6.9% over the prior year quarter.
With respect to patient mix in occupancy skilled days mix in Fourq, you 19 of 17.9% declined 20 basis points from the prior year quarter, marking the lowest rate of year over year skilled mix decline since 2015.
Operating occupancy and 14 19 of 87.8% increased 220 basis points from the prior year quarter.
30 basis points of this increase represents same store growth and the remainder represents the impact of divesting properties, having below average occupancy.
This is the fifth consecutive quarter of same store occupancy growth and we continue to see year over year growth thus far in 2020.
Now to reimbursement rates same store weighted average reimbursement rate growth was strong in for Q 19 at 4.3% fueled by higher average Medicare payment rates under PDP EM.
And by the recognition of a new provider tax program in the state of New Mexico that was implemented retroactive to July one 2019.
Because the new Mexico provider tax program was implemented retroactive to our third quarter and as noted on this call last quarter.
$5 million of net Medicaid reimbursement recorded in Fourq, you 19 relates to Threeq you 19.
Adjusting for this out of quarter income our same store weighted average reimbursement rate growth in Fourq, you 19 was 3.7% over fourq away team.
Looking ahead, we expect our 2020 year over year reimbursement rate growth to be between three and 3.5%.
Further drilling into PDP M or transition last October went very smoothly. Thanks to the hard work dedication and skill of our exceptional clinical operations finance regulatory and systems professionals.
We have operated five four months under the new system.
Over that period of time and after adjusting out the 2.4% market basket increase.
Our average Medicare rate per patient day has consistently run about 5% higher than our average payment rate under the prior rug system.
On the rehab side, a PD PM, we successfully met our goal to offset dollar for dollar the impact of third party contract pricing changes by adjusting our labor model and better leveraging more cost effective modes of delivery such as group and concurrent therapy.
These actions also served to reduce the cost of delivering therapy services in our own Genesis skilled nursing facilities by $6 million in Fourq, you 19, or 80% of the annual run rate savings we anticipate.
As a result of our rehab teams planning and successful execution around PDP and adjusted EBITDAR margins in our rehab segment grew 60 basis points in for Q 19 over for Q 18.
Although it's still early in the transition we are increasingly confident that ppm as a viable reimbursement model for the future.
Model that more effectively accounts for the broad array of medical complexities and care needs of our patients.
And last I'll touch on wage inflation.
For Q 19 wage inflation for non overtime hours worked by our employees nursing staff grew 3.7% over Fourq you 18.
Including overtime hours in agency costs are all in nursing wage cost per worked our grew 5.4% in Fourq you 19 over for Q 18. This is a 90 basis point increase in the all in nursing wage inflation reported last quarter.
This rate of wage inflation is specific to our nursing function, where we continue to see the greatest wage pressure.
The nursing function represents about 50% of our labor force.
Wage inflation and the other half of our Labor force approximated, 2.1%. So in the aggregate Genesis is overall wage inflation rate in Fourq, you 19 was about 3.7% or 20 basis points higher than what we reported last quarter.
Although wage inflation at 3.7% continues to be above historic levels reimbursement rates are keeping pace.
To recap the results, we're very pleased with continued strength in the topline performance metrics of our inpatient business.
We remain optimistic that occupancy skilled mix and reimbursement rate trends will fewer fuel organic growth in the future.
This along with our unique investment strategies and portfolio optimization, the expansion of our a CEO and the strength of our ancillary platform position us well for long term growth.
With that Marcus Please open up the call for any questions.
Thank you at this time.
I would like to remind everyone everyone likes Vasco question. Please press star and then the number wanting a telephone keypad I can then star one.
Your first question comes on line of A., J Rice with credit Suisse.
Thanks higher by.
Maybe first just dig talking about the kobin.
Teed situation a little bit more is.
I know what the 2017 28 game flu season, we look back on that I think you guys had about 90 facilities, where you went to an admission hold on those it doesn't sound like that in play yet at this point what makes you do that and then the flipside of courses.
There's some discussion about acute care hospitals trying to free up capacity. It's one thing that sometimes is seen as they will discharge a patient to a post acute setting quicker than they might otherwise do are you seeing any of that phenomenon.
And your facilities at this point.
Let me take that I'm going to turn it over to which I'll give you start on that that AJ.
Look I think.
As far as the.
Admission band facilities from from the normal flu I think that is for the most part run its course this year the impact of I'd say normal fluid mission bands.
You know are.
No not anywhere near the level, we saw 17 18 ops at this point in time as it relates to cobot.
We have the one facility in the and the one.
The one patient.
That facility. Obviously it has has an admission dance so we're not seeing any material impact on census.
As we sit here today.
Obviously, we're going to make will continue to monitor the situation very closely.
We will have obviously a.
Yes.
The impact of the virus Phil.
To be seen the full impact from the virus no.
Both both nationally and clearly at Genesis level as well.
I'm going to turn the.
The call over to to Dr. play for US, we can address kind of what situations and dr. reifsnyder what situations cause us to.
For the put in place admission bands.
Yes, hi.
In all cases, we are working closely with the local departments of public health on sensitive question is an important questions like that and so in the one case and the one center that has a co bid 19 patient right now the department of health requested in the mission bands and and of course, we followed that.
That requirement and that's how we'll be managing this going forward.
The goal for the Department of Health and for Genesis is to keep virus from coming to centers and also spreading outside the centers. So we'll be working in lock step with Deo H. on on all questions like that with regard to the other part of your question, which is hospitals.
I think discharge patients to create capacity, we are definitely seeing that and hearing that and are working very closely with local hospital partners and to the extent that.
The patients that are being transferred do not represent a risk and the center that we would receive them into does not have cobot 19 patients.
Our year to work with them to support that Joanne you looked at anything to that.
No I think that covers that rich. Thank you.
Okay.
Hey, I was going to ask about it staffing.
As you face the situation like this.
Do you maintained the current level of clinical Nonclinical staffing is there any reason maybe nonclinical you you don't have quite as many people there or on the clinical do you need to staff up a little bit.
Give us your thoughts on that and I guess, Tom as you think about the broader environment.
Steve will get hourly workers getting laid off and other areas does that help you in any way or maybe it's too early to see that in terms of your staffing costs.
Were 22, reducing drilling would it take the senator level that question on on staffing.
Then Tom will follow up.
Sure. Thank you George so.
The we are currently.
As I as rich said restricting.
All visitors from the outside except in compassionate care extenuating circumstances like end of life.
We are allowing and snacks, requiring all of our team members and employees who are center base.
You come to work as we consider them all essential to the operation centers, we have staffing plans in place.
For every center and we are monitoring that every day and will step up and our staffing up as necessary.
During the find me if I may add we're also very closely following the guidance issued and the requirements issued by CMS, just a few days ago to limit staffing essential health care personnel.
Those who are essential for the care. The residents anything that is discretionary or not time sensitive is being deferred.
Okay.
And AJ on your staffing question I think it's a little early for US where we are in the cycle here to say that we're seeing hiring opportunities as a result of other workers being displaced in there.
Their businesses, but I think it's an excellent observation, it's certainly something that's crossed our mind as well and I think it could pose a very important opportunity for health care providers across the country to go in recent times of have difficulty with scarcity of staff just given the robust job market. So I do I do think there's an API.
Unity there.
Okay, and maybe last question real quick on them.
This is the second quarter I know the 10-Q last time and now the 10-K is talking about.
Beliefs cabinets, the Jared renegotiation can you just explain to us it doesn't sound like Theres, particularly urgency about it but what what is going on with that and when do you think you'll get that addressed.
Hey, Jay we for the number of very large material master leases that we have and large credit agreements were in compliance with all of those agreements and we fully expect that will.
Remain in compliance the I think there's there's for instance, one.
Lease involving two facilities.
That is compliant and quite frankly has not been in compliance for quite some time in the rather than just fixing the problem. The landlord just continues to issuance waivers we've been collecting waivers for you know the past.
For years.
Okay, all right. Thanks, a lot.
Your next question comes on line of Chad Bennett core with Stifel.
Thanks.
Staying with the Cobot 19 outbreak if there is an outbreak in your community what kind of protocols you haven't place.
Take care of the restaurants that are already there.
Rich.
Sure.
Of course every situation is going to be somewhat different but we're working closely with the department of health in each case to understand the nature of the outbreak the likelihood of spread or if it has spread within central beyond the initial case because an outbreak is defined as one case, but right now even before the possibility of the case.
Getting to the center we are on on heightened guard. We're following the most stringent the most protected the most rigorous measures that had been suggested either.
Federal or state or local level for example.
Residents are not leaving their room for social gatherings, where meal.
Any discretionary visitors are not coming in even discretionary healthcare workers are not coming in.
Symptoms are being monitored and temperatures are being taken for all residents in all of our centers quite scaling so that continuous surveillance should we have a problem we pick it up quickly before it spreads within the center, we are reducing the transfer or the movement of yeah and providers between centers. So that we do not.
Burton see essentially become effective before a set number potentially developed symptoms. So these are examples of the guidance that have come out from CDC in us and the American Health Care Association and we are following all of them.
Letter ended I Miss anything.
I would just add that.
If we have confirmed co pays we would add additional isolation measures that that individual except person remains in the center that person would be placed in a private room and we could see proper isolation of caution.
In place and then to enhance the continued monitoring of other residents.
Yeah as well.
Okay and have you to date have you limited care workers from going from facility the facility.
We have reduced to send possible. So limited, yes, I'm caregivers going from facility to facility in some environments and for Sun care workers and Subspecialties for example, if necessary, but you've reduced that we've also put in place a requirement.
That that healthcare workers do not go from that facility that does have cases to a facility that doesn't so that we do not inadvertently spread in that manner.
Okay and then just.
Tom You were you were talking about PDP m. year experienced date.
How does how does your experience Ben in gains compared to what you had thought last quarter and then how how much of that it gets offset by what we're seeing in terms of labor inflation.
Well I look what we had said publicly was that.
PD PM on the rate side to be flat to slightly positive.
We were being a little bit conservative there because the last time, we reported Chad we only had about a month under our belt.
Out of moving pieces there but.
As as the months, we're on our Medicare rate remained very steady.
At this plus 5% level and I think it really just speaks to.
The medical needs and medical complexities of our patience and that's what we would expect to see.
With this new reimbursement system. So we're happy with where the rates landed they're not too far off of our models, we were being a little conservative in our in our in our projections. There I was for the staffing costs look it's very difficult to predict that.
You know you've seen that it's been moving in a particular direction now for quite some time.
I think it's mostly the the nursing function, where we see it the rest of the business, including on the ancillary side is running at 2.1% and.
Look I think AJ brought up a very very interesting.
Point, an observation, we don't really know what we're going to see in the next couple of weeks in terms of availability of stuff there, maybe some folks coming into the workforce.
That that can really help us and other providers like us.
And so I think the inflation side on on labor cost just remains to be seen.
All right I'll leave it there thanks.
Your next question comes on line of Frank Morgan with RBC capital markets.
Good morning, I guess I have to it's not good question.
We've been asked this question by investors and so I know it's out there in People's minds, but in terms of just overall emissions.
What percentage would you say, you're actually discretionary I mean, obviously again tossed put a press release out today, saying, they're seeing a slowdown in their senior housing business, but how would you describe.
The overall discretionary nature of a general.
Long term care patient or specifically a Medicare admission.
Our dumping a first crack at that and then obviously a rich in Joanne to to weigh in.
Never probably use the word discretionary.
Forward admission into into one of our centers.
I would use the word discretionary potentially descried maybe certain.
Elective.
Surgical procedures, where the patients out the patients discretion potentially when actually to have that procedure, where that you know acute or surgical procedure would require.
Post acute.
Admission for therapy et cetera post post surgery.
And I do think that.
Well I don't think we have.
Any good accurate data on you know elective surgery versus non as far as no admission volume.
I would venture to guests at the vast majority of admissions in the post acute care.
From hospital from hospital setting.
It's from a non discretionary type activity.
As we look at coded no clearly if people can avoid access into the healthcare system.
There.
No.
Acute intervention is never easy way discretionary I think they're going to try to defer that that action until.
This pandemic somewhat runs it runs its course, so they are potentially has a negative impact downstream to us.
As far as discretionary.
An elective procedures are concerned and the admissions coming.
We are way from from those.
Elective.
Activities, but I don't think its I don't think it's.
By any stretch the majority of what we see.
No our doors continued to be open where we're not down by any kind of admission restriction.
We are seeing no.
Normal levels of of patient flow and patient activity as we sit here today, obviously, it's something we'll continue to monitor.
Richard go in anything to add there.
I could add something while we don't have specific data on the percent that are lexia or not so I cannot give you a number but I can acknowledge in recent years. The proportion of our emissions that had been elective has frankly gone down and the proportion that have involved complex.
Medical situations has gone up those more straightforward elective cases, as you know have increasingly been going to ambulatory rehabilitation type of programs in models and so we had been seeing more and more complex medical cases, and those are the ones that we likely will continue to see during this crisis.
Thank you and I get that that's a good segue into the comment Tom made about the rate growth.
Attributing that to your patient population.
Maybe just any more color you can share on that and.
How sustainable do you think the 5% is and do you think this is something that CMS actually thought what happen.
Well I will say Frank that the rate that you see in the fourth quarter has really held up here in January and February and I'm, assuming through March as well so it seems like it's.
It's.
More consistent quite frankly from month to month than I thought was possible, maybe even more stable than our rugs rate for that matter. So I do feel like.
The rates that you're seeing in these numbers in this release are reflective of.
The medical needs as they score of our patients under under PDP EM.
[noise] other other providers may have very different very different result.
Yeah Fragmenting, obviously the co that issue is going to I think impact to thinking of.
No.
Reimbursement rates for poor skilled nursing. There's no question. There is an incremental cost for Genesis has and the rest of the industry to implement the the programs and the protocol that.
Dr Piper and Dr. led Snyder hub have discussed on this call. So.
Hopefully and any thoughts around reimbursement rate well, we'll consider the.
The impact of the virus on this industry.
But one final one and I'll hop just eat you have in under this new system, a PDP on how to the bank is going to its kind of with the Tory light flu like cases container that some of the average rates.
Oh.
Yes, Frank I don't think we're prepared to talk about rates at a diagnosis level.
On this call.
But but I can tell you that as you look at just a general comment the more medically complex.
The needs are of a patient and quite frankly, the less intensive rehab needs of that patient are.
The higher the rate.
Okay. Thank you.
At this time certainly have no further questions.
Well just that mean conclusion, obviously, we are in a time not only in this industry, but in this country where.
Our lives are changing dramatically I can assure you people following the company.
All the stakeholders another way our investors blood.
You know the patients we serve and our employees, we're doing everything humanly possible to protect everyone's interest.
First and foremost includes interest of our patients in our employees and their safety.
We will continue to.
To work diligently.
And I.
Probably tell by by the energy level of some voices are clinicians are not your wife's better dark fiber or working 24 seven.
There there is no less at this time.
Managing the risk of of the situation and we appreciate your support and we continue to move to the highest quality of service. We provide thank you everyone.
This concludes todays conference you may now disconnect.
Thank you.