Genesis Upbeat About Second Quarter Despite Loss

August 8, 2018, Maggie Flynn, Skilled Nursing News - Genesis Healthcare (NYSE: GEN) recorded another net loss for 2018 in the second quarter, but CEO George Hager stressed that Q2 “was a significant and very positive quarter” for the troubled skilled nursing giant.

Genesis reported a net loss of $39.61 million, or $0.39 per share, for the second quarter of 2018, compared with a net loss of $65.16 million, or $0.70 per share, in the year-ago period.  The Kennett Square, Pa.-based operator reported a net loss of $68.5 million for the first quarter.

“While challenges do remain, the trends are clearly improving,” Hager said on the second-quarter earnings call.  “The year-over-year census decline is narrowing.  The summer months are actually showing some stability in what is typically a seasonally soft period, and we are seeing some improvement in the reimbursement rate environment.”

Positive on PDPM 

Hager joined Omega Healthcare Investors (NYSE: OHI) CEO Taylor Pickett and CareTrust REIT (Nasdaq: CTRE) CEO Greg Stapley in expressing optimism about the new Patient-Driven Payment Model (PDPM), which is set to take effect Oct. 1, 2019, and replace the Resident Utilization Group — Version 4 (RUG-IV).  

Though Genesis is moving to implement changes to technology platforms, training programs, and operating procedures, Hager stressed that overall, the operator is expecting good things from the coming change.

“Once fully integrated, we believe this new model … will allow us to reduce certain administrative costs, use more cost-efficient therapy modalities such as group and concurrent therapy, and redirect clinical resources to patient care,” he said on the call.  “While we are still reviewing the details, and need to build out our model, we continue to view PDPM as an overall positive for Genesis and the industry.”

Earlier this year, Hager told Skilled Nursing News that under RUG-IV, “group and concurrent therapy are significantly undervalued,” as it allows for therapy to provided at a lower cost.  Lou Ann Soika, who serves as senior vice president of customer relations and strategic development for the provider’s rehab arm, Genesis Rehab Services (GRS), said at the time that PDPM would allow more flexibility for Genesis’ therapy providers to make recommendations as they see fit.

Genesis has been making changes at GRS to prepare for PDPM, Hager said in response to analyst questions Wednesday.  The company has made executive management changes and taken “significant cost out at the overhead level,” in addition to pruning its customer portfolio and focusing the business.

“Obviously PDPM … is not as rehab-centric as the current RUG system,” Hager acknowledged.  “And we believe there will be significant changes in how therapy services are provided to skilled nursing contracted customers …  There is no question that the top-line of our rehab business will be lower under PDPM, and we’ll see a quarter of that at backend of 2019.”

Managed Medicare grows

Operating occupancy in the second quarter was 84.1%, a drop of 50 basis points from the year-ago period.  Though skilled nursing occupancy has been on a steady downward drop over the past several quarters, according to data from the National Investment Center for Seniors Housing & Care (NIC), Genesis CFO Tom DiVittorio said there has been a deceleration in the year-over-year occupancy decline.

Medicare mix declined 90 basis points from the 2017 second quarter, while the insurance category — primarily managed Medicare days — increased 10 basis points.  Genesis also saw a 4.2% decline in skilled patient admissions, compared with Q2 2017.

“The 4.2% skilled patient admission decline was driven by an 8.5% decline in Medicare admissions, offset by a 70-basis-point increase in managed Medicare admissions,” DiVittorio said.

The numbers seem to bear out the broader trend of Medicare Advantage (MA) expansion: A report from the Kaiser Family Foundation earlier this year found spending on MA almost doubled over the past decade.  Genesis did note, however, that the average Medicare and managed Medicare length of stay for patients discharged to home was relatively flat.

There has also been some improvement in Medicaid reimbursement, in addition to the 2.4% Medicare increase from CMS set to take effect later this year.  Medicaid rates grew 2.7% this quarter, with states such as New Mexico and Florida delivering strong rate increases, Hager said.

The company’s portfolio optimization strategy was also noted as helping to improve overall results.  Genesis expects to sell, divest, or exit the operations of 44 facilities in the second half of the year, after selling or divesting 19 facilities in the first half of 2018.

“We will continue to execute transactions that will return Genesis to our original strategic model that emphasizes strong local market density, in those markets with meaningful acute care and fair relationships, solid demographics, availability of clinical skill and responsible reimbursement systems,” Hager said.  “This focused approach will result in more consistent and positive clinical, operating, and financial outcomes.”