Genesis Targets Increased Real Estate Ownership As CEO Touts Strength Of Its ACO

August 8, 2019, Maggie Flynn, Skilled Nursing News - Genesis HealthCare (NYSE: GEN) reported improvement in its 2019 second-quarter financial results, and CEO George Hager is optimistic about the second half of the year — in part because of the skilled nursing operator’s participation in the Medicare Shared Savings Program (MSSP) as an accountable care organization (ACO).

The skilled nursing giant, which operates about 400 skilled nursing centers and senior living communities in 30 states, has built a physician-led MSSP ACO geared exclusively to long-term care residents.  Under the ACO system, groups of health care providers come together to provide coordinated care for Medicare patients; if they hit certain benchmarks, they can share in the savings they generate for the Medicare program.

And on the second-quarter earnings call, Hager reiterated the company’s optimism about the ACO’s benefits in a health care system that’s increasingly focused on outcomes.  Though Genesis has not yet received its retrospective reconciliation of performance from the Centers for Medicare & Medicaid Services (CMS), it is “cautiously optimistic” that it will see a gain share, Hager said.

“Our ACO is a unique and critically important strategic asset for the company as we continue to capitalize on the evolution to a value-based health care system,” Hager said on the call.  “We believe that the membership in our ACO can be significantly expanded, not only inside Genesis, but also more broadly throughout the SNF industry, as we achieve positive patient outcomes as well as positive financial results.”

Genesis expects its reconciliation for 2018 later this month; it generated a loss last year, Jason Feuerman — senior vice president for strategic development and managed care — noted recently at the Senior Care 360 conference in a presentation that was otherwise optimistic about the model’s value.

The Kennett Square, Pa.-based Genesis reported a net loss of $4.8 million in the second quarter of 2019, compare with a net loss of $39.6 million in the year-ago period.   The operator reported revenue of $1.15 billion in the quarter, compared with revenue of $1.27 billion in the second quarter of 2018

Ownership and Optimization

Genesis is still focused on portfolio optimization, Hager said, and the company recently exited the state of Ohio altogether, bringing the states that Genesis has vacated to six: Kansas, Missouri, Iowa, Nebraska, Texas, and Ohio.

Even though the Medicaid reimbursement landscape in Ohio is fairly strong, the quality of the assets in that state — which were inherited in a 2011 transaction — were below average, executives said on the call.  The Buckeye State was a market where Genesis lacked density, which according to Hager’s prepared remarks is a key factor in the company’s overall portfolio optimization strategy.

Given limited capital, Genesis decided it was better not to try and expand in the state, executives said.

“It’s a pretty crowded state.  There are a lot of strong operators in Ohio,” Hager said on the call.  “And we thought it was best to exit, recycle our capital, and reduce our leverage.”

Genesis is targeting either ownership or fixed-price purchase options on at least 30% of its portfolio by the end of next year, even though it will keep divesting non-strategic or underperforming facilities for the rest of 2019.

Specifically, the company is looking at the possibility of replicating its joint venture with Next Healthcare Capital to buy 15 SNFs that Genesis previously leased from Welltower (NYSE: WELL).  That JV is doing well, executives said, with Genesis benefiting from reduced lease rates and the anticipation of the purchase option on the facilities.

It’s a deal Genesis believes can be a template, both with Next and with other owners.

“We are very, very optimistic about our ability to replicate that type of transaction, as a means by which we can reacquire significant amounts of our real estate,” Hager said.

Genesis shares rose $0.05 in Thursday’s trading, closing the day up 4.95% at $1.06.